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Policy Uncertainty, Persistence and Growth *
Author(s) -
Aizenman Joshua,
Marion Nancy P.
Publication year - 1993
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1993.tb00012.x
Subject(s) - persistence (discontinuity) , economics , investment (military) , endogenous growth theory , tax policy , macroeconomics , econometrics , monetary economics , public economics , market economy , tax reform , human capital , political science , geotechnical engineering , politics , law , engineering
This paper explores links between policy uncertainty and growth. Using an endogenous growth model in which domestic investment is characterized by irreversibilities and policy fluctuates between a high‐ and a low‐tax regime, it shows that the magnitude of policy fluctuation and the persistence of policy jointly determine the pattern of investment and growth. Cross‐section regressions confirm that for 46 developing countries over the 1970‐85 period, policy uncertainty is negatively correlated with both investment and growth. Policy persistence also plays an important role.