The Impact of Fiscal Policy Variables on Output Growth
IMF Working Papers, January 1, 1998
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- The Impact of Fiscal Policy Variables on Output Growth
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Bibliographic details
- Authors: Philip R. Gerson
- Published: January 1, 1998
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451841602.001
Summary findings
- The paper surveys the theoretical and empirical literature on the relationship between taxation and public expenditure and economic growth.
- Particular attention is paid to the effect of taxation and government expenditure on the supply and productivity of labor and physical capital.
- Studies suggest that well-targeted government expenditures on health, education, and infrastructure should have a positive impact on growth.
- By contrast, the impact of taxation on the supplies of labor and capital, and on output growth, is more muted.
Key themes and analysis
- Fiscal policy channels examined:
- Taxation: effects on labor supply, capital supply, and output growth.
- Government expenditure: effects on labor productivity, physical capital productivity, and overall growth.
- Sectoral emphasis:
- Health, education, and infrastructure expenditures are highlighted as likely to yield positive growth effects.
- Supply-side mechanisms:
- Government spending can influence the supply and productivity of labor and physical capital.
- Taxation influences labor and capital supplies but shows a more muted effect on output growth compared with targeted spending.
Policy implications and recommendations
- Prioritize well-targeted government expenditures in:
- Health
- Education
- Infrastructure
- Consider that taxation reforms may have limited direct impact on output growth through labor and capital supply channels, implying the importance of complementary policies that enhance productivity.
Content in this bundle
- The Impact of Fiscal Policy Variables on Output Growth - WP/98/1