Why Run a Million Regressions? Endogenous Policy and Cross Country Growth

Günther Rehme

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: This paper analyzes the link between growth and public policy when the latter depends on economically important fundamentals. When policy is endogenous the measured effects of policy on growth will generally be biased. Using a widely quoted theoretical model, the signs of the biases are derived. It is shown that the usually reported effects on growth of tax rate variables related to GDP, the ratio of public investment to total investment and the ratio of redistributive transfers to GDP are generally biased downwards. Based on these signed biases the paper discusses some empirical results that seem puzzling from a theoretical viewpoint.

Date: 2004-11
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Published in Darmstadt Discussion Papers in Economics . 140 (2004-11)

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Working Paper: Why Run a Million Regressions? Endogenous Policy and Cross Country Growth (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:21579

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