DP885 Fiscal Policy and Economic Growth: An Empirical Investigation

Author(s): William Easterly, Sérgio Rebelo
Publication Date: January 1994
Keyword(s): Development, Fiscal Policy, Growth, Infrastructure, Investment
JEL(s): E62, O40
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=885

This paper describes the empirical regularities relating fiscal policy variables, the level of development and the rate of growth. We employ historical data, recent cross-section data, and newly constructed public investment series. Our main findings are: first, there is a strong association between the development level and the fiscal structure: poor countries rely heavily on international trade taxes, while income taxes are only important in developed economies; second, fiscal policy is influenced by the scale of the economy, measured by its population; and third, investment in transport and communication is consistently correlated with growth while the effects of taxation are difficult to isolate empirically.