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Endogenous Policy and Cross-Country Growth Empirics

Rehme, Günther (2007):
Endogenous Policy and Cross-Country Growth Empirics.
Darmstadt, In: Darmstadt Discussion Papers in Economics, [Online-Edition: http://tuprints.ulb.tu-darmstadt.de/4744],
[Report]

Abstract

In this paper it is shown that it matters a lot for empirical research whether policy is taken to be exogenously set or to be endogenous. In the model investment depends on policy which depends on economically important fundamentals and is, thus, endogenous. Conditioning on factor accumulation in growth regressions that also include endogenous policy variables may then be problematic. When policy is endogenous the measured effects of policy on growth will generally be biased. Based on the model and OECD data, the signs of the biases for tax variables related to the tax base and for redistribution are derived. Based on these signed biases the paper discusses some empirical results that seem puzzling from a theoretical viewpoint. The paper argues that regressing growth on policy may still yield important information if policy endogeneity is taken account of.

Item Type: Report
Erschienen: 2007
Creators: Rehme, Günther
Title: Endogenous Policy and Cross-Country Growth Empirics
Language: English
Abstract:

In this paper it is shown that it matters a lot for empirical research whether policy is taken to be exogenously set or to be endogenous. In the model investment depends on policy which depends on economically important fundamentals and is, thus, endogenous. Conditioning on factor accumulation in growth regressions that also include endogenous policy variables may then be problematic. When policy is endogenous the measured effects of policy on growth will generally be biased. Based on the model and OECD data, the signs of the biases for tax variables related to the tax base and for redistribution are derived. Based on these signed biases the paper discusses some empirical results that seem puzzling from a theoretical viewpoint. The paper argues that regressing growth on policy may still yield important information if policy endogeneity is taken account of.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 182
Place of Publication: Darmstadt
Uncontrolled Keywords: Growth, Policy, Cross-Sectional Models
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Economic Theory
Date Deposited: 31 Jan 2016 20:58
Official URL: http://tuprints.ulb.tu-darmstadt.de/4744
URN: urn:nbn:de:tuda-tuprints-47441
Additional Information:

JEL - Classification : O4, D3, C2

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