Public Policy and Economic Growth
NBER WORKING PAPER SERIES
PUBLIC POLICY AND ECONOMIC GROWTH; OEVELOPING NEOCLASSICAL IMPLICATIONS
Robert G. King Sergio Rebelo
Working Paper No. 3338
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Masaarhusetts Avenue Cambridge, MA 02138 April 1990
This paper is part of NBER's research program in Growth. Any opinions expressed are those of the authors and not those of the National Bureau of Economic Research.
NBER Working Paper #3335 April 1990 PUBLIC POLICY AND ECONOMIC GROWTH: DEVELOPING NEOCLASSICAL IMPLICATIONS 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 In particular, for small open substantially affect long run growth rates. 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 in basic endogenous growth models, the welfare cost of a 10 % implications: increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.
Robert i"ing Department of Economics University of Rochester Rochester, NY 14627 and Rochester Center for Economic Research
Sergio Rebelo
Kellogg Graduate School of Management Northwestern University 2001
PUBLIC POLICY AND ECONOMIC GROWTH; OEVELOPING NEOCLASSICAL IMPLICATIONS
Robert G. King Sergio Rebelo
Working Paper No. 3338
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Masaarhusetts Avenue Cambridge, MA 02138 April 1990
This paper is part of NBER's research program in Growth. Any opinions expressed are those of the authors and not those of the National Bureau of Economic Research.
NBER Working Paper #3335 April 1990 PUBLIC POLICY AND ECONOMIC GROWTH: DEVELOPING NEOCLASSICAL IMPLICATIONS 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 In particular, for small open substantially affect long run growth rates. 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 in basic endogenous growth models, the welfare cost of a 10 % implications: increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.
Robert i"ing Department of Economics University of Rochester Rochester, NY 14627 and Rochester Center for Economic Research
Sergio Rebelo
Kellogg Graduate School of Management Northwestern University 2001