The Optimum Rate of Investment and Growth

Maurice FitzGerald Scott

in A New View of Economic Growth

Published in print June 1991 | ISBN: 9780198287421
Published online November 2003 | e-ISBN: 9780191596872 | DOI:

Series: Clarendon Paperbacks

 The Optimum Rate of Investment and Growth

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Using post Second World War data for the USA and the UK up to 1973, marginal social returns to investment are tentatively estimated to have been about 13% per annum, and marginal post‐tax shareholder returns less than half of this. The large gap between these was due to four factors: taxation accounted for about a third, a learning externality for about two‐thirds, a market externality for rather more than a third, and animal spirits roughly negatived that. If all four factors could have been overcome, investment would have been far higher and growth perhaps 2% per annum faster in each country, though whether this would really have been optimal is doubtful. Nevertheless, governments should consider taxing savings less and increasing their own rate of saving. Other views of optimum growth, such as the Golden Rule, are attacked.

Keywords: animal spirits; Golden Rule; government saving; learning externality; marginal shareholder return; marginal social return; market externality; optimum growth; taxation

Chapter.  25329 words. 

Subjects: Economic Development and Growth

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