nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒07‒05
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Finance and Growth: When Does Credit Really Matter? By Coricelli, Fabrizio; Roland, Isabelle
  2. Tax Evasion and Growth: a Banking Approach By Max Gillman; Michal Kejak
  3. A Quantitative Exploration of the Golden Age of European Growth By Francisco Alvarez-Cuadrado; Mihaela I. Pintea

  1. By: Coricelli, Fabrizio; Roland, Isabelle
    Abstract: The paper provides a simple theory and empirical evidence on the asymmetric effect of credit markets on output decline and output growth. When credit markets are underdeveloped and enterprise activity is financed outside the banking sector, exogenous shocks may induce a break-up of both credit and production chains, leading to sudden and sharp collapses in output. The development of a banking sector can reduce the probability of such collapses. Using industry-level data across a large cross-section of countries, the empirical analysis suggests that credit markets play a more important role in softening output declines than in fostering growth or recovery. These results suggest that credit markets are one of the main suspects for explaining why the magnitude of output declines tends to be larger in emerging markets than in advanced market economies.
    Keywords: credit and output; Emerging Economies; sharp recessions
    JEL: E44 O43
    Date: 2008–06
  2. By: Max Gillman (Cardiff University); Michal Kejak (The Center for Economic Research and Graduate Education of Charles University (CERGE EI))
    Abstract: The paper formalizes the relation between flat taxes and growth when there is a competitive equilibrium tax evasion. A decentralized tax evasion service is supplied by the banking sector. The bank production function follows the financial intermediation microfoundation approach, with deposits as an input. Across a class of endogenous growth models, tax evasion decreases the effective tax rate, and thereby lessens the negative effect of taxes on growth. And as the tax rate rises, tax evasion causes the growth rate to fall by less. Underlying the results is a fiscal principle whereby tax evasion creates, or magnifies, a rising demand price sensitivity to higher tax rates.
    Keywords: Tax evasion, financial intermediation, endogenous growth, and flat taxes.
    JEL: E13 E62 H26 O41
    Date: 2008–06
  3. By: Francisco Alvarez-Cuadrado (Department of Economics, McGill University); Mihaela I. Pintea (Department of Economics, Florida International University)
    Abstract: Income per capita in some Western European countries more than tripled in the two and a half decades that followed World War II. The literature has identified several factors behind this outstanding growth episode, specifically; structural change associated with large migrations from agriculture to nonagricultural sectors, the Marshall Plan combined with the public provision of infrastructure, the surge of intra-European trade, and the reconstruction process that followed the devastation of the war. This paper is an attempt to formalize and quantify the direct contribution of each one of these factors to growth during the European Golden Age. Our results highlight the importance of reconstruction growth and structural change, and point to the limited role of the Marshall Plan, and the late contribution of intra-European trade.
    Keywords: Economic Growth, European Economic History 1913-, Computable General Equilibrium Models.
    JEL: O40 N14 C68
    Date: 2008–06

This nep-fdg issue is ©2008 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.