The relationship between inflation and economic growth in OECD countries

Abstract: In modern world, economic growth is the main object of many countries. And the rate of inflation is another central subject for the macro economic policy in many countries and it is an important criteria to measure whether the macro economy in a country works steadily and healthy. So the relationship between these two indexes---economic growth rate and the inflation rate is always debated. There are three possible relations between the two variables: positive, negative and no effect. And many theories and empirical results are carried out to test the relationship. This paper analyses the relationship between inflation and gross domestic product (GDP) in OECD countries while at the same time considering the influence of variables such as: investment rate, trade balance, fertility rate, direct foreign investment and tax. The main object is to asses the effect of inflation on economic growth. The second aim is to check the effect of tax rate on the economic growth rate. Tax is also important for the economy. Econometrics techniques for panel data are used for the analysis.