Relative Prices, Economic Growth and Tax Policy

IMF Working Papers, November 1, 1995

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Relative Prices, Economic Growth and Tax Policy

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Bibliographic details

• Authors: Michael Sarel
• Published: November 1, 1995
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451853667.001

Link between relative prices and tax policy

• The 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.

Theoretical framework

• Using an extension to a standard model of economic growth, the paper 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.

Data and empirical approach

• 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.

Key findings

• The results of these empirical tests identify the relative prices as a key factor affecting investment and growth.

Subject coverage and keywords

• Subject: Agroindustries, Economic sectors, Expenditure, Government consumption, Income, National accounts, Production, Production growth, Public expenditure review
• Keywords: Agroindustries, Government consumption, growth rate, Income, investment goods basket, investment rate, price level, price ratio, Production growth, Public expenditure review, relative price, WP