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Supply-Side Policy and Economic Growth: A Case Study of the UK

Lucy Barros Orcid Logo, David Meenagh

Open Economies Review, Volume: 31, Issue: 1, Pages: 159 - 193

Swansea University Author: Lucy Barros Orcid Logo

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Abstract

This paper investigates the potential for a causal relationship between certain supply-side policies and UK output and productivity growth between 1970 and 2009. We outline an open economy DSGE model of the UK in which productivity growth is determined by the tax and regulatory environment faced by...

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Published in: Open Economies Review
ISSN: 0923-7992 1573-708X
Published: 2020
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URI: https://cronfa.swan.ac.uk/Record/cronfa50593
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last_indexed 2021-01-20T04:12:25Z
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spelling 2021-01-19T11:24:16.7150107 v2 50593 2019-06-03 Supply-Side Policy and Economic Growth: A Case Study of the UK 17877dc7759b0b75dc595a574bcc9b49 0000-0002-8421-107X Lucy Barros Lucy Barros true false 2019-06-03 ECON This paper investigates the potential for a causal relationship between certain supply-side policies and UK output and productivity growth between 1970 and 2009. We outline an open economy DSGE model of the UK in which productivity growth is determined by the tax and regulatory environment faced by firms. This model is estimated and tested using simulation-based econometric methods (indirect inference). Using Monte Carlo methods we investigate the power of the test as we apply it, allowing the construction of uncertainty bounds for the structural parameter estimates and hence for the quantitative implications of policy reform in the estimated model. We also test and confirm the model's identification, thus ensuring that the direction of causality is unambiguously from policy to productivity. The results offer robust empirical evidence that temporary changes in policies underpinning the business environment can have sizeable effects on economic growth over the medium term.JEL Codes: E02, O4, O43, O5 Journal Article Open Economies Review 31 1 159 193 0923-7992 1573-708X Taxation, Regulation, Labour Market Regulation, Economic Growth, DSGE, Indirect Inference 1 2 2020 2020-02-01 10.1007/s11079-019-09536-8 https://link.springer.com/article/10.1007/s11079-019-09536-8 COLLEGE NANME Economics COLLEGE CODE ECON Swansea University 2021-01-19T11:24:16.7150107 2019-06-03T10:11:39.7012988 Lucy Barros 0000-0002-8421-107X 1 David Meenagh 2 0050593-23072019110836.pdf 50593.pdf 2019-07-23T11:08:36.4870000 Output 1001078 application/pdf Version of Record true 2019-07-22T00:00:00.0000000 Released under the terms of a Creative Commons Attribution 4.0 International License (CC-BY). true eng
title Supply-Side Policy and Economic Growth: A Case Study of the UK
spellingShingle Supply-Side Policy and Economic Growth: A Case Study of the UK
Lucy Barros
title_short Supply-Side Policy and Economic Growth: A Case Study of the UK
title_full Supply-Side Policy and Economic Growth: A Case Study of the UK
title_fullStr Supply-Side Policy and Economic Growth: A Case Study of the UK
title_full_unstemmed Supply-Side Policy and Economic Growth: A Case Study of the UK
title_sort Supply-Side Policy and Economic Growth: A Case Study of the UK
author_id_str_mv 17877dc7759b0b75dc595a574bcc9b49
author_id_fullname_str_mv 17877dc7759b0b75dc595a574bcc9b49_***_Lucy Barros
author Lucy Barros
author2 Lucy Barros
David Meenagh
format Journal article
container_title Open Economies Review
container_volume 31
container_issue 1
container_start_page 159
publishDate 2020
institution Swansea University
issn 0923-7992
1573-708X
doi_str_mv 10.1007/s11079-019-09536-8
url https://link.springer.com/article/10.1007/s11079-019-09536-8
document_store_str 1
active_str 0
description This paper investigates the potential for a causal relationship between certain supply-side policies and UK output and productivity growth between 1970 and 2009. We outline an open economy DSGE model of the UK in which productivity growth is determined by the tax and regulatory environment faced by firms. This model is estimated and tested using simulation-based econometric methods (indirect inference). Using Monte Carlo methods we investigate the power of the test as we apply it, allowing the construction of uncertainty bounds for the structural parameter estimates and hence for the quantitative implications of policy reform in the estimated model. We also test and confirm the model's identification, thus ensuring that the direction of causality is unambiguously from policy to productivity. The results offer robust empirical evidence that temporary changes in policies underpinning the business environment can have sizeable effects on economic growth over the medium term.JEL Codes: E02, O4, O43, O5
published_date 2020-02-01T04:04:00Z
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score 10.887713