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A New View of Economic Growth$
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Maurice FitzGerald Scott

Print publication date: 1991

Print ISBN-13: 9780198287421

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198287429.001.0001

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The Optimum Rate of Investment and Growth

The Optimum Rate of Investment and Growth

(p.424) 15 The Optimum Rate of Investment and Growth
A New View of Economic Growth

Maurice FitzGerald Scott

Oxford University Press

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

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