A Panel Data Study of the Effects of Economic Freedom, Regulatory Quality, and Taxation on the Growth Rate of Per Capita Real GDP

Cebula, Richard and Foley, Maggie (2011): A Panel Data Study of the Effects of Economic Freedom, Regulatory Quality, and Taxation on the Growth Rate of Per Capita Real GDP. Published in: Journal of Public Finance and Public Choice , Vol. 30, No. 1-3 (27 December 2012): pp. 103-122.

Abstract

This study empirically investigates three hypotheses. The first is that higher levels of economic freedom in an economy promote a higher growth rate of economic activity and hence yield a higher growth rate of per capita real GDP in that economy. The second hypothesis is that higher quality government regulation leads to a more efficient economic system, in large part by interfering less with market functioning and in part by not adding unnecessarily to the cost of conducting business in the marketplace, and thereby leads to a higher per capita real GDP growth rate. The third hypothesis is that the higher the taxation level/burden relative to GDP in an economy, the lower the growth rate of private sector spending and hence the lower the growth rate of per capita real GDP in that economy. Using a panel dataset for OECD nations over the 2003 through 2006 period, fixed effects PLS estimations find compelling evidence in support of all three of these hypotheses.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; economic freedom; quality regulation; tax burdens
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; K - Law and Economics > K2 - Regulation and Business Law > K23 - Regulated Industries and Administrative Law; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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