Policy Uncertainty, Persistence and Growth*

Abstract

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.

Volatility and firm growth

“…In particular, Aghion et al (2006), Aizenman and Marion (1993), Aizenman and Marion (1999), Campos and Nugent (2003), Fatas and Mihov (2006), and Ramey and Ramey (1995) explicitly focus, among other things, on proxies for policy volatility in this regard. 1 While earlier work typically relied on cross-country regressions, emerging research also presents disaggregated evidence (Imbs 2007).…”

Economic Policy Uncertainty and Housing Returns in Germany: Evidence From a Bootstrap Rolling Window

“…Policy uncertainty can impact the various sectors of the economy; the world economy has undergone huge fluctuations and has yet to emerge from the post-crisis era. Aizenman and Marion (1993) find that policy uncertainty can suppress the investment. Brogaard and Detzel (2015) find that EPU earns a significant negative risk premium in the portfolios and argue that EPU is an important risk factor for equities.…”

Fiscal Policy and Unemployment in South Africa: 1980 – 2010

“…To examine the relationship between fiscal policy and the behaviour of unemployment in developing countries, various researches have also been conducted. These include studies by Aizenman and Marion (1993), Giavazzi, Jappelli, and Pagano (2000), Brett (2005), Pepinsky (2007), Agénor, Nabli, Yousef, and Jensen (2007), Schclarek (2007), and Zenou (2008). Although a large gap of literature exists in South Africa, various researchers have tried to model fiscal policy and unemployment in the country.…”