Relative Prices, Economic Growth and Tax Policy
November 1, 1995
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Summary
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.
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
Pages:
28
Volume:
1995
DOI:
Issue:
113
Series:
Working Paper No. 1995/113
Stock No:
WPIEA1131995
ISBN:
9781451853667
ISSN:
1018-5941
