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Relative Prices, Economic Growth and Tax Policy

Author

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  • Mr. Michael Sarel

Abstract

This paper examines the role of relative prices in economic growth and the possibility that relative prices are (or can be) partly determined by tax policy. In the opening section, the paper links relative prices to tax policy. Using an extension to a standard model of economic growth, it demonstrates that under certain conditions a simple tax policy, that determines the relative price of investment, can affect the investment rate and the permanent growth rate of the economy. The paper develops a method to obtain consistent data on relative prices for a large set of countries. Using these data in cross-country regressions, it examines how economic growth is affected by relative prices. The results of these empirical tests identify the relative prices as a key factor affecting investment and growth.

Suggested Citation

  • Mr. Michael Sarel, 1995. "Relative Prices, Economic Growth and Tax Policy," IMF Working Papers 1995/113, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/113
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    Citations

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    Cited by:

    1. Weicheng Lian & Natalija Novta & Evgenia Pugacheva & Yannick Timmer & Petia Topalova, 2020. "The Price of Capital Goods: A Driver of Investment Under Threat," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 509-549, September.
    2. Weicheng Lian & Natalija Novta & Evgenia Pugacheva & Yannick Timmer & Petia Topalova, 0. "The Price of Capital Goods: A Driver of Investment Under Threat," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-41.
    3. B. Ben Moummad & E. Ezzahid & A. Zoglat, 2023. "The impact of capital goods prices on Africa's economic performance," South African Journal of Economics, Economic Society of South Africa, vol. 91(1), pages 68-84, March.
    4. Paul Wonnacott & Ronald J. Wonnacott, 1999. "An Economic Theory of the GATT: A Generalization," University of Western Ontario, Departmental Research Report Series 9901, University of Western Ontario, Department of Economics.
    5. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.

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