Government expenditure and economic growth : theoretical and empirical analysis
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Abstract
The discussion on the disparities in income and economic growth across countries has gained momentum in the literature. One strand of the literature has emphasized the differences between countries as a major contributing factor to the differences in growth rates. Government policy is one such unique country specific characteristic. This dissertation analyses the role of government policy and the resultant growth effect through three research papers. The first paper (chapter two) reviews the effects of changes in government policy through taxation. Changes on three types of taxes – taxes on wages, consumption and capital – are analyzed in a static neoclassical growth model. Within the setting of a static model with zero long run growth, the results find for important implications of changes in taxes on the levels of income, consumption and investments in the long run. The second paper (chapter three) looks at the effects of different types of government spending on long run growth through a theoretical endogenous growth setting. We find that government spending on human capital is important for long run growth. Finally, Chapter four using an empirical approach extends the analysis in chapter three and finds that government spending policy is important for long run growth.