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Relative Prices, Economic Growth and Tax Policy
Author:
Mr. Michael Sarel
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Series:
IMF Working Papers
Volume/Issue:
Volume 1995: Issue 113
Language:
English
Publication Date:
01 Nov 1995
DOI:
https://doi.org/10.5089/9781451853667.001
ISBN:
9781451853667
ISSN:
1018-5941
Pages:
28
Keywords:
WP; price level; growth rate; investment rate; price ratio; investment goods basket; relative price; Income; Public expenditure review; Government consumption; Production growth; Agroindustries
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund