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An Econometric Analysis of Fiscal Policy Budget Constraints in Endogenous Growth Models

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  • Yoshihiko Tsukuda
  • Tatsuyoshi Miyakoshi

Abstract

This paper provides an econometric theory for examining the predictions of the public-policy endogenous growth models of Barro (1990) and others that suggest that unlike distortionary taxation and productive expenditures, nondistortionary taxation and nonproductive expenditures have no direct effect on the rate of growth. We prove that the estimates of all other regressions can be produced using only the estimates of the regression equation originally chosen. This illustrates from a statistical point of view why we are indifferent to the choice of omitted variable. Hence, decisions regarding omitted variables must incorporate criteria from the endogenous growth models. A numerical example using Kneller et al. (1999) sheds light on how the econometric analysis works in practice, and clarifies its significance for empirical study.

Suggested Citation

  • Yoshihiko Tsukuda & Tatsuyoshi Miyakoshi, 2008. "An Econometric Analysis of Fiscal Policy Budget Constraints in Endogenous Growth Models," TERG Discussion Papers 232, Graduate School of Economics and Management, Tohoku University.
  • Handle: RePEc:toh:tergaa:232
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    File URL: http://hdl.handle.net/10097/55387
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    Cited by:

    1. Tatsuyoshi Miyakoshi & Yoshihiko Tsukuda & Tatsuhito Kono & Makoto Koyanagi, 2010. "Economic Growth And Public Expenditure Composition: Optimal Adjustment Using The Gradient Method," The Japanese Economic Review, Japanese Economic Association, vol. 61(3), pages 320-340.
    2. Tatsuyoshi Miyakoshi & Tatsuhito Kono & Kota Terasawa, 2010. "Optimal Adjustment Of The Composition Of Public Expenditure In Developing Countries," Pacific Economic Review, Wiley Blackwell, vol. 15(5), pages 577-595, December.

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