Public Policy and Economic Growth: Developing Neoclassical Implications

Robert King () and Sergio Rebelo ()

No 3338, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Why do the countries of the world display considerable disparity in long term growth rates? This paper examines the hypothesis that the answer lies in differences in national public policies which affect the incentives that individuals have to accumulate capital in both its physical and human forms. Our analysis shows that these incentive effects can induce large difference in long run growth rates. Since many of the key tax rates are difficult to measure, our procedure is an indirect one We work within a calibrated, two sector endogenous growth model, which has its origins in the microeconomic literature on human capital formation. We show that national taxation can substantially affect long run growth rates. In particular, for small open economies with substantial capital mobility, national taxation can readily lead to "development traps" (in which countries stagnate or regress) or to "growth miracles" (in which countries shift from little growth to rapid expansion) This influence of taxation on the rate of economic growth has important welfare implications: in basic endogenous growth models, the welfare cost of a 10 % increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.

Date: 1990-04
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (502)

Published as Journal of Political Economy 98, October 1990, No. 5 part 2 5126-5150

Downloads: (external link)
http://www.nber.org/papers/w3338.pdf (application/pdf)

Related works:
Working Paper: PUBLIC POLICY AND ECONOMIC GROWTH: DEVELOPING NEOCLASSICAL IMPLICATIONS (1988)
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:nbr:nberwo:3338

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3338

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().