{
  "title": "Expenditure Composition and Distortionary Tax for Equitable Economic Growth",
  "publication": "IMF Working Papers, June 1, 2006",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/expenditure-composition-and-distortionary-tax-for-equitable-economic-growth-19258",
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  "summary": "This paper continues the study of optimal fiscal policy in a growing economy by exploring a case in which the government simultaneously provides three main categories of expenditures with distortionary tax finance: public production services, public consumption services, and state-contingent redistr",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- The paper studies optimal fiscal policy in a growing economy where the government simultaneously provides three expenditure categories financed by distortionary taxes: public production services, public consumption services, and state-contingent redistributive transfers.\n- In a general equilibrium model with given exogenous fiscal policy, a nonlinear relation exists between the suboptimal longrun growth rate in a competitive economy and distortionary tax rates.\n- When fiscal policy is endogenously chosen at a social optimum, the relation between the rate of growth and tax rates is always negative.\n- The interaction between fiscal policy and growth cannot be captured adequately by a simple linear model using an aggregate measure of fiscal policy."
    },
    {
      "heading": "Model mechanisms and sources of nonlinearity",
      "content": "- Expectation and coordination of fiscal policy.\n- Impulse response of government policies.\n- Presence of positive externality due to government spending."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Fiscal policy design must account for nonlinear effects of distortionary taxation on long-run growth.\n- Aggregate measures of fiscal stance may misrepresent the complex interaction between expenditure composition and growth.\n- Optimal policy analysis should consider endogenous choice of fiscal instruments and the differentiated roles of public production services, public consumption services, and state-contingent redistributive transfers.\n\n---\n\n Content in this bundle\n\n- Wp06165\n  - Wp06165 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp06165 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/expenditure-composition-and-distortionary-tax-for-equitable-economic-growth-19258"
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    "[Markdown version](/en/publications/wp/issues/2016/12/31/expenditure-composition-and-distortionary-tax-for-equitable-economic-growth-19258/index.md)",
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    "Authors: Hyun Park",
    "Published: June 1, 2006",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451864250.001",
    "The paper studies optimal fiscal policy in a growing economy where the government simultaneously provides three expenditure categories financed by distortionary taxes: public production services, public consumption services, and state-contingent redistributive transfers.",
    "In a general equilibrium model with given exogenous fiscal policy, a nonlinear relation exists between the suboptimal longrun growth rate in a competitive economy and distortionary tax rates.",
    "When fiscal policy is endogenously chosen at a social optimum, the relation between the rate of growth and tax rates is always negative.",
    "The interaction between fiscal policy and growth cannot be captured adequately by a simple linear model using an aggregate measure of fiscal policy.",
    "Expectation and coordination of fiscal policy.",
    "Impulse response of government policies.",
    "Presence of positive externality due to government spending.",
    "Fiscal policy design must account for nonlinear effects of distortionary taxation on long-run growth.",
    "Aggregate measures of fiscal stance may misrepresent the complex interaction between expenditure composition and growth.",
    "Optimal policy analysis should consider endogenous choice of fiscal instruments and the differentiated roles of public production services, public consumption services, and state-contingent redistributive transfers.",
    "**Wp06165**"
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