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Tax Incentives and Economic Growth

By Barry P. Bosworth

The sharp decline in U.S. productivity growth in the 1970s has brought about a renewed interest in economic policies to expand aggregate supply. Particular importance has been given to the role played by government intervention in the form of taxes, transfer payments, and regulation. This volume asks just what is known about the effect of government policy on the productive capacity of the nation. It also looks at the role played by capital formation, technological change, and the quality of the work force.

Barry P. Bosworth, a senior fellow in the Economic Studies program at Brookings, summarizes the empirical evidence about the causes of the productivity slowdown and the effects of taxes on saving, investment, and work effort. This sets the stage for a discussion of the need for policies that focus on the supply side of the economy and what form such policies might take. Specifically, differing views about the effects of taxes on the incentives for saving and work are shown to be responsible for much of the continuing debate over policies to promote economic growth. Lastly, the author examines the problems of coordinating measures to change tax incentives with fiscal and monetary policies.

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