Growth, Public Policy and the Government Budget Constraint:Evidence from OECD Countries

This paper examines whether the evidence from OECD countries is consistent withthe predictions of endogenous growth models that the structure of taxation and publicexpenditure can affect the steady-state growth rate. We find strong support for theBarro (1990) public policy endogenous growth model for a panel of 22 OECDcountries over the period 1970-95. Specifically we find that (1) distortionary taxationreduces growth, whilst non-distortionary taxation does not; and (2) productivegovernment expenditure enhances growth, whilst non-productive expenditure doesnot...