Institut de Recherches Économiques et Fiscales

IREF Europe - Institut de Recherches Économiques et Fiscales

Pour la liberté économique
et la concurrence fiscale

IREF - Institut de Recherches Économiques et Fiscales
Pour la liberté économique et la concurrence fiscale

IREF Monographs

Looking, without success, for

a good reason not to worry about Public Debt

By Pierre Garello and Vesselina Spassova

Abstract : Few will debate the proposition that the rate at which an economy grows has an impact on its debt and that, inversely, public debt impacts growth. Opinions among economists however start to diverge when dealing with the magnitude and direction of such impacts. To decide these questions macroeconomic modelling and econometrics have been often relied upon. Here, however, another path has been taken to approach study of the interactions between national debt and economic growth.

Drawing a parallel with the case of a household economy, we believe—admittedly without great originality—that public debt can lead to greater or lesser public wealth depending on how the borrowed capital is used. For this reason we have decided to look first at the structure of public spending : What are the respective shares of consumption and investment expenditure ? We will see that, in a country such as France, most public money is spent on consumption and little on investment, so that sound reasons exist for concern about an increasing public debt.

"Public Spending & Growth"by Patrick Minford and Jiang Wang

Introduction : There is by now a huge and rapidly expanding- literature on ’endogenous growth’. In this literature certain ingredients ’enter the production function’- that is contribute to the generation of output- which are themselves enhanced in their effects by the extra output. Hence growth may enter a ’self-feeding’ phase when these elements are present or increased beyond a certain threshold. Such elements are said to include education or personal knowledge (’human capital’), public infrastructure and research and development...

"Taxation, Individual Incentives and Economic Growth"by Alex Robson

Economists have long recognized that high levels of taxation may have adverseconsequences for individual economic incentives. Standard microeconomic measures ofthe welfare costs of wage taxation reveal that these adverse effects can be considerable.To the extent that economic growth is a sensible indicator of economic welfare, taxeswhich reduce welfare will also tend to reduce economic growth. Thus, as a generalproposition, higher tax rates should tend to have negative consequences for economicgrowth, but certain kinds of tax structures may tend to favour economic growth morethan others.Overall, existing empirical evidence tends to suggest that higher taxes are associatedwith lower economic growth, but since no econometric test can prove the direction ofcausation in the true sense of that term, the direction of causality remains unclear.Nevertheless, this paper finds that for the case of personal income taxes, a positivecorrelation between higher growth and higher personal income tax rates does not tendto show up in OECD data for the 1980-2000 period. Indeed, in economies wheresubstantial tax cuts took place during this period, per capita economic growth rateswere almost double those enjoyed by economies where no substantial tax cuts tookplace.

Second prize on the IREF Contest 2004 on Taxation and Economic Growth

"Taxation and Economic Growth : Reconciling Intuition and Theory"by Dalibor Rohac

Abstract : The present paper deals with the relationship between taxation and economic growth.After proposing a very general and theoretical discussion of the nature of taxation, wereview the introduction of taxation into various models of economic growth, bothexogenous and endogenous. In the simplest version of endogenous growth models weshow how taxation affects growth rates. We examine the results of different empiricalstudies and simulations, compare the effects of various modes of taxation and offer acritical examination of fiscal role of government.

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