Tax Incentives and Economic Growth

By Barry P. Bosworth | Go to book overview

CHAPTER SIX
Implications for Economic Policy

THE sharp deterioration in economic growth since the early 1970s has been a major motivation behind the renewal of interest in economic policies to expand aggregate supply. In the public discussion of the reasons for that disappointing economic performance, mistaken government policies have been singled out as the major villain. Particular importance has been attached to the pivotal role played by taxes, which are alleged to have destroyed incentives for saving, investment, and work.

The previous chapters have provided a survey and evaluation of the empirical research on many of the issues that arise in that discussion. Such a survey highlights the many areas of uncertainty about the understanding of the growth process and the effect of government policies on it. Some conclusions do emerge, however, that should have an important influence on the current public discussion.


Capital Formation and Productivity Growth

Despite major research efforts, the causes of the post- 1973 slowdown in productivity growth--a drop of 1½ to 2 percentage points in the growth rate--remain, in large part, a mystery. The studies summarized in chapter 2 have evaluated the quantitative effect of a large number of potential explanations. Among those factors are: the growth in the proportion of young and less experienced workers in the labor force, increased government regulation, the rise in energy prices, a reduction in research and development, and two major economic recessions. Yet the conclusion of the quantitative studies is that each of these factors contributes very little to the total slowdown. Other common explanations, such as a shift to a service-based economy, have been dismissed by these studies.

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Tax Incentives and Economic Growth
Table of contents

Table of contents

  • Title Page iii
  • Foreword vii
  • Contents ix
  • Chapter One - the Supply-Side Debate 1
  • Chapter Two - the Role of Capital Formation 23
  • Summary 55
  • Chapter Three - Saving and Private Capital Formation 59
  • Summary 94
  • Chapter Four - Investment Demand and Its Relation to Saving 97
  • Summary 127
  • Chapter Five - Labor Supply 130
  • Summary 172
  • Chapter Six - Implications for Economic Policy 177
  • Index 205
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