GOVERNMENT SPENDING, TAXES, AND ECONOMIC-GROWTH

This paper develops an endogenous growth model of the influence of pub lic investment, public transfers, and distortionary taxation on the ra te of economic growth. The growth-enhancing effects of investment in p ublic capital and transfer payments are modeled, as is the growth-inhi biting influence of the levying of distortionary taxes that are used t o fund such expenditure. The theoretical implications of the model are then tested with data from 23 developed countries between 1971 and 19 88, and time series cross sectional results are obtained that support the proposed influence of the public finance variables on economic gro wth.