Fiscal Policy and Growth in the OECD

Angel de La Fuente ()

No 1755, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates the impact of public expenditures and taxation on economic growth using panel data for a sample of OECD countries. The empirical results suggest that fiscal policy influences growth through three main channels. First, the government contributes directly to factor accumulation through public investment in infrastructure and other assets. Second, public expenditure tends to crowd out private investment by reducing disposable income and the incentive to save. Third, there is evidence of a sizeable negative ‘externality’ effect of government on the level of productivity. According to the estimates, the effective cost of $1 of public expenditure is around $1.3 once the relevant distortions are taken into account. While this figure is viewed as an upper bound, it does suggest that taxes and public expenditures generate significant efficiency costs which should be taken into account when making budget decisions.

Keywords: Fiscal Policy; Growth; Public Investment (search for similar items in EconPapers)
JEL-codes: E62 O40 (search for similar items in EconPapers)
Date: 1997-12
References: Add references at CitEc
Citations: View citations in EconPapers (58)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1755 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1755

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1755

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().