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Policy variables and growth: evidence from Israel

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  • Yaakov Lavi
  • Michel Strawczynski

Abstract

This paper estimates the impact of policy variables on the per-capita Business Sector GDP in Israel in the framework of an extended neo-classical model. The methodology assesses the impact of policy variables on the components of the production function: factors of production (capital and labour) and total factor productivity. Using the cointegration approach, both long-run and short term specifications are tested. It is shown that: i) in the long-run the reduction of taxes, public sector deficit and inflation enhance growth mainly through an increase in total factor productivity; ii) in the short-run transitory changes in taxes do not affect business sector GDP, while persistent changes in taxes do affect it. It is also shown that persistent mass immigration waves to Israel enhanced production through a 'scale effect', since they implied an increase in the market size.

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  • Yaakov Lavi & Michel Strawczynski, 2002. "Policy variables and growth: evidence from Israel," Applied Economics Letters, Taylor & Francis Journals, vol. 9(2), pages 81-86.
    • Handle: RePEc:taf:apeclt:v:9:y:2002:i:2:p:81-86
    DOI: 10.1080/13504850110050692
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    References listed on IDEAS

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    1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    2. 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.
    3. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    4. Barro, Robert J. & Lee, Jong-Wha, 1994. "Sources of economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 1-46, June.
    5. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
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    Cited by:

    1. Strawczynski Michel, 2014. "Cyclicality Of Statutory Tax Rates," Israel Economic Review, Bank of Israel, vol. 11(1), pages 67-96.

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