Relative Prices, Economic Growth and Tax Policy, Issues 95-113
International Monetary Fund, Research Department, 1995 - Développement économique - Modèles économétriques - 23 pages
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.
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3.120 Observations Length Appendix average growth rate constant countries is 104 countries is 52 data on relative Dependent variable determined by tax different prices economic growth effect of income effect of relative empirical evidence regarding equation A14 estimation is OLS explanatory variable five regressions government consumption Growth Regressions human capital investment price investment rate key factor affecting large set Length of 30 links relative prices low-income countries measured in PPP Method of estimation method to obtain Number of 104 Number of countries obtain cross-country data output per person output/investment price ratio P/PA Period Period Dummies permanent growth rate positive correlation PPP current dollars predictions price level price of investment price ratio P/Pi prices in economic prices to tax private consumption PWT 5.6a database rate of output Regressions on Relative set of countries simple tax policy studies subsidy rate Summers and Heston t-statistics in parentheses Yes No Yes