Working Paper: NBER ID: w3325
Authors: Sergio Rebelo
Abstract: The wide cross-country disparity in rates of economic growth is the most puzzling feature of the development process. This paper describes a class of models in which this type of heterogeneity in growth experiences can arise as a result of cross-country differences in government policy. These differences in policy regimes can also create incentives for labor migration from slow growing to fast growing countries. In the class of models that we study growth is endogenous but the technology exhibits constant returns to scale and there is a steady state path that accords with Kaldor's stylized facts of economic development. The key to making growth endogenous in the absence of increasing returns is the presence of a "core" of capital goods that can be produced without the direct or indirect contribution of factors that cannot be accumulated, such as land.
Keywords: Economic Growth; Government Policy; Taxation; Endogenous Growth
JEL Codes: O40; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income tax rate increase (H29) | Rate of return on investment decrease (G31) |
| Rate of return on investment decrease (G31) | Capital accumulation decline (E22) |
| Capital accumulation decline (E22) | Economic growth rate decline (O49) |
| Income tax rate increase (H29) | Economic growth rate decline (O49) |