Government Policies and Economic Growth

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As a society, our standard of living depends on our ability to produce goods and services (Mankiw, 2012). The ability to produce these goods and services depends on several factors including physical capital, human capital, natural resources, and technology (Mankiw, 2012). The government plays an important role in an economy’s growth rate. They achieve their influence on the growth rate through their implementation of several government policies. These policies not only influence the economy’s growth rate, but also play a significant role in day-to-day life. Government policies on savings and investments play an important role in influencing both the economic growth rate and day-to-day lives. A country’s saving and investing rates are connected very closely with that country’s economic growth rate (Kotlikoff, 2008). This is also tied to the population growth in an economy. The younger the workforce the more they will be saving for retirement, instead of spending their retirement (Kotlikoff, 2008). This leads to a positive saving rate. In a country with a growing economy, the savings rate will be positive to ensure enough capital for its workers (Kotlikoff, 2008). The more that is being saved, the more we have to spend on capital to improve productivity. In the United States, all levels of government account for nearly one fifth of America’s consumption (Kotlikoff, 2008). This allows the government to be a major player in economic growth. The government’s policies on taxes have a profound effect on saving. If the government taxes capital over labor, it leads to a decline in savings (Kotlikoff, 2008). The government’s policies on taking from the younger workforce and distributing that to the elders in society also... ... middle of paper ... ... The government plays an important role in a nation’s economy. Their decisions on what policies to push through, and which ones to leave on the table influence both their citizen’s and their economy. Since a nation’s government is one of the largest groups of unified people in a country, their policies can have a profound influence. Works Cited Education-Portal.com. (2010, 01 26). Retrieved 08 14, 2011, from New Study Links Education to Economic Growth: http://education-portal.com/articles/ New_Study_Links_Education_to_Economic_Growth.htm Kotlikoff., L. J. "Saving." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved August 14, 2011 from the World Wide Web: http://www.econlib.org/library/Enc/Saving.html Mankiw, G. (2012). Pricipals of Macroeconomics (6th Edition ed.). Mason, OH: South-Western Cengage Learning.
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