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Fiscal Policy, Private Investment and Economic Growth: Evidence from G-7 Countries

27 Pages Posted: 27 Oct 2003  

K. Peren Arin

Zayed University

Date Written: April 2, 2004

Abstract

Measuring the effects of fiscal policy on economic growth is difficult, because fiscal policy variables are influenced by changes in income. This paper uses an unbalanced panel data set for G-7 countries for the period 1965-2000 that includes annual estimates of cyclically adjusted government expenditures, capital outlays, income tax revenues, indirect tax revenues, corporate tax revenues and social security tax revenues, based on definitions developed by OECD revenue statistics. The percentage share of these estimates in GDP is used to investigate the effects of fiscal policy on economic growth, and results are compared with regression results that use 5-year averages of cyclically unadjusted variables. The empirical results from both sets of regressions suggest that only taxes on household income and government expenditures have negative effects on per capita income growth. We consolidate our findings by showing that both government expenditures and income taxes have distortionary effects on private investment.

Keywords: Fiscal Policy, Economic Growth, Cyclical Adjustment

JEL Classification: O23, H30

Suggested Citation

Arin, K. Peren, Fiscal Policy, Private Investment and Economic Growth: Evidence from G-7 Countries (April 2, 2004). Available at SSRN: https://ssrn.com/abstract=438785 or http://dx.doi.org/10.2139/ssrn.438785

Kerim Peren Arin (Contact Author)

Zayed University ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

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