IDEAS home Printed from https://ideas.repec.org/a/spr/frecch/v4y2009i4p505-525.html
   My bibliography  Save this article

Government expenditure, taxation and long-run growth

Author

Listed:
  • Chengliang Yan
  • Liutang Gong

Abstract

This paper assesses the effect of fiscal policy on economic growth in an AK model with endogenous labor supply. It is found that the structure of taxation and government expenditure could affect the long-run growth rate through their effect on households’ labor-leisure choice, saving-consuming choice and the proportion of government expenditure to GDP. Barro’s (1990) plausible result that the growth rate and the income tax rate have an inverted-U relationship does not always hold. In addition, based on the panel data of 31 provinces from 1997 to 2007, we investigate the link between components of government productive expenditure and economic growth. It is found that the productive expenditure does not always have a positive effect on the growth rate, and its effect exhibits regional differences. The reason is that there is an excess amount of the government productive expenditure in China or the efficiency of the government productive expenditure may be too low.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Chengliang Yan & Liutang Gong, 2009. "Government expenditure, taxation and long-run growth," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(4), pages 505-525, December.
    • Handle: RePEc:spr:frecch:v:4:y:2009:i:4:p:505-525
    DOI: 10.1007/s11459-009-0027-y
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11459-009-0027-y
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11459-009-0027-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-550, June.
    2. Tanaka, Hitoshi & Iwaisako, Tatsuro & Futagami, Koichi, 2007. "Dynamic analysis of innovation and international transfer of technology through licensing," Journal of International Economics, Elsevier, vol. 73(1), pages 189-212, September.
    3. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    4. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
    5. Turnovsky, Stephen J., 2000. "Fiscal policy, elastic labor supply, and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 185-210, February.
    6. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    7. Robert M. Solow, 1994. "Perspectives on Growth Theory," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 45-54, Winter.
    8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    9. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    10. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    11. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
    12. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    13. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    14. Antonio Ladrón-de-Guevara & Salvador Ortigueira & Manuel S. Santos, 1999. "A Two-Sector Model of Endogenous Growth with Leisure," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(3), pages 609-631.
    15. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    16. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 126-150, October.
    17. Miller, Stephen M & Russek, Frank S, 1997. "Fiscal Structures and Economic Growth: International Evidence," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 603-613, July.
    18. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
    19. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    20. Ortigueira, Salvador, 1998. "Fiscal policy in an endogenous growth model with human capital accumulation," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 323-355, July.
    21. Michael B. Devereux & David R. F. Love, 1994. "The Effects of Factor Taxation in a Two-Sector Model of Endogenous Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 509-536, August.
    22. Angelopoulos, Konstantinos & Economides, George & Kammas, Pantelis, 2007. "Tax-spending policies and economic growth: Theoretical predictions and evidence from the OECD," European Journal of Political Economy, Elsevier, vol. 23(4), pages 885-902, December.
    23. repec:bla:scandj:v:95:y:1993:i:4:p:607-25 is not listed on IDEAS
    24. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
    25. Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
    26. R. Milbourne & G. Otto & G. Voss, 2003. "Public investment and economic growth," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 527-540.
    27. Timothy J. Kehoe & Edward C. Prescott, 2007. "Great depressions of the twentieth century," Monograph, Federal Reserve Bank of Minneapolis, number 2007gdott.
    28. Howitt, Peter & Aghion, Philippe, 1998. "Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth," Journal of Economic Growth, Springer, vol. 3(2), pages 111-130, June.
    29. Jonathan Temple, 2003. "The Long‐Run implications of Growth Theories," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 497-510, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sefa Awaworyi Churchill & Mehmet Ugur & Siew Ling Yew, 2017. "Does Government Size Affect Per-Capita Income Growth? A Hierarchical Meta-Regression Analysis," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 142-171, March.
    2. HYE, Qazi Muhammad Adnan & M Anwar, Jalil, 2010. "Revenue and Expenditure Nexus: A Case Study of Romania," MPRA Paper 32132, University Library of Munich, Germany.
    3. Awaworyi Churchill Sefa & Ugur Mehmet & Yew Siew Ling, 2017. "Government education expenditures and economic growth: a meta-analysis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 17(2), pages 1-17, June.
    4. Awaworyi Churchill, Sefa & Yew, Siew Ling & Ugur, Mehmet, 2015. "Effects of Government Education and Health Expenditures on Economic Growth: A Meta-analysis," EconStor Preprints 110901, ZBW - Leibniz Information Centre for Economics.
    5. Gonzales, Ivonne & Martner Fanta, Ricardo & Podestá, Andrea, 2013. "Políticas fiscales para el crecimiento y la igualdad," Macroeconomía del Desarrollo 5372, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    6. Andrzej Karpowicz & Zbigniew Korzeb & Paweł Niedziółka, 2022. "Macroeconomic and sectoral specific determinants of bank levies’ inflows in European Union," Bank i Kredyt, Narodowy Bank Polski, vol. 53(2), pages 183-202.
    7. Baocheng He & Jiawei Wang & Jiaoyang Wang & Kun Wang, 2018. "The Impact of Government Competition on Regional R&D Efficiency: Does Legal Environment Matter in China’s Innovation System?," Sustainability, MDPI, vol. 10(12), pages 1-18, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sefa Awaworyi Churchill & Mehmet Ugur & Siew Ling Yew, 2017. "Does Government Size Affect Per-Capita Income Growth? A Hierarchical Meta-Regression Analysis," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 142-171, March.
    2. Hammed Adetola Adefeso, 2016. "Productive Government Expenditure and Economic Performance in sub-Saharan Africa: An Empirical Investigation," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 19(2), pages 1-18, November.
    3. Turnovsky, S., 2000. "Growth in an Open Economy: some Recent Developments," Papers 5, Warwick - Development Economics Research Centre.
    4. Durusu-Ciftci, Dilek & Gokmenoglu, Korhan K. & Yetkiner, Hakan, 2018. "The heterogeneous impact of taxation on economic development: New insights from a panel cointegration approach," Economic Systems, Elsevier, vol. 42(3), pages 503-513.
    5. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    6. Halit Yanikkaya & Taner Turan, 2020. "Tax Structure And Economic Growth: Do Differences In Income Level And Government Effectiveness Matter?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(01), pages 217-237, March.
    7. Dimitrios Paparas & Christian Richter, 2015. "Fiscal policy and economic growth: Empirical evidence from the European Union," Working Papers 2015.06, International Network for Economic Research - INFER.
    8. Hyun Park, 2010. "Fiscal Policy and Equitable Growth," Review of Development Economics, Wiley Blackwell, vol. 14(1), pages 121-140, February.
    9. repec:rre:publsh:v:34:y:2004:i:1:p:72-94 is not listed on IDEAS
    10. Halkos, George & Paizanos, Epameinondas, 2015. "Fiscal policy and economic performance: A review of the theoretical and empirical literature," MPRA Paper 67737, University Library of Munich, Germany.
    11. Halit Yanikkaya & Taner Turan, 2018. "Tax Structure And Economic Growth: Do Differences In Income Level And Government Effectiveness Matter?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(01), pages 217-237, May.
    12. Günther Rehme, 2011. "Endogenous Policy And Cross‐Country Growth Empirics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 262-296, May.
    13. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    14. Norman Gemmell, 2001. "Fiscal Policy in a Growth Framework," WIDER Working Paper Series DP2001-84, World Institute for Development Economic Research (UNU-WIDER).
    15. Luo, Weijie, 2019. "Composition of taxes and growth: Evidence from OECD panel data," Economics Discussion Papers 2019-43, Kiel Institute for the World Economy (IfW Kiel).
    16. Eleftherios Goulas & Athina Zervoyianni, 2012. "Growth, Deficits and Uncertainty in a Panel of 28 Countries," Working Paper series 52_12, Rimini Centre for Economic Analysis.
    17. Kazuo Mino, 2016. "Fiscal Policy in a Growing Economy with Financial Frictions and Firm Heterogeneity," The Japanese Economic Review, Japanese Economic Association, vol. 67(1), pages 3-30, March.
    18. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
    19. Alfò, Marco & Carbonari, Lorenzo & Trovato, Giovanni, 2023. "On the effects of taxation on growth: an empirical assessment," Macroeconomic Dynamics, Cambridge University Press, vol. 27(5), pages 1289-1318, July.
    20. Gustavo Marrero, 2010. "Tax-mix, public spending composition and growth," Journal of Economics, Springer, vol. 99(1), pages 29-51, February.
    21. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.

    More about this item

    Keywords

    economic growth; fiscal policy; taxation; government expenditure; E620; H200; O400; 经济增长; 财政政策; 税收; 公共支出;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:frecch:v:4:y:2009:i:4:p:505-525. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.