Relative Prices, Economic Growth and Tax Policy

Michael Sarel

No 1995/113, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the role of relative prices in economic growth and the possibility that relative prices are (or can be) partly determined by tax policy. In the opening section, the paper links relative prices to tax policy. Using an extension to a standard model of economic growth, it demonstrates that under certain conditions a simple tax policy, that determines the relative price of investment, can affect the investment rate and the permanent growth rate of the economy. The paper develops a method to obtain consistent data on relative prices for a large set of countries. Using these data in cross-country regressions, it examines how economic growth is affected by relative prices. The results of these empirical tests identify the relative prices as a key factor affecting investment and growth.

Keywords: WP; price level; growth rate; investment rate; price ratio; investment goods basket; relative price; Income; Public expenditure review; Government consumption; Production growth; Agroindustries (search for similar items in EconPapers)
Pages: 28
Date: 1995-11-01
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1995/113

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