How much do distortions affect growth?

William Easterly

    Research output: Contribution to journalArticle

    Abstract

    This paper presents a simple endogenous growth model with two types of capital which can display sizeable long-run growth effects of distortionary policies. The model applies to many different types of distortions of relative prices common in developing countries, such as differential taxes and tariffs, black market exchange rates, and price controls. The model shows that a subsidy to one type of capital financed by a tax on another capital good lowers growth. A measure of the variance of relative prices of investment goods across sectors has a negative and statistically significant effect on growth.

    Original languageEnglish (US)
    Pages (from-to)187-212
    Number of pages26
    JournalJournal of Monetary Economics
    Volume32
    Issue number2
    DOIs
    StatePublished - 1993

    Fingerprint

    Tax
    Relative prices
    Long-run growth
    Developing countries
    Tariffs
    Black market exchange rate
    Subsidies
    Endogenous growth model
    Price controls

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Cite this

    How much do distortions affect growth? / Easterly, William.

    In: Journal of Monetary Economics, Vol. 32, No. 2, 1993, p. 187-212.

    Research output: Contribution to journalArticle

    Easterly, William. / How much do distortions affect growth?. In: Journal of Monetary Economics. 1993 ; Vol. 32, No. 2. pp. 187-212.
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