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Title:Quantifying optimal growth policy PDF Logo
Authors:Grossmann, Volker
Steger, Thomas M.
Trimborn, Timo
Issue Date:2010
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5007
Abstract:The optimal mix of growth policies is derived within a comprehensive endogenous growth model. The analysis captures important elements of the tax-transfer system and takes into account transitional dynamics. Currently, for calculating corporate taxable income US firms are allowed to deduct approximately all of their capital and R&D costs from sales revenue. Our analysis suggests that this policy leads to severe underinvestment in both R&D and physical capital. We find that firms should be allowed to deduct between 2-2.5 times their R&D costs and about 1.5-1.7 times their capital costs. Implementing the optimal policy mix is likely to entail huge welfare gains.
Subjects:Economic growth
endogenous technical change
optimal growth policy
tax-transfer system
transitional dynamics
JEL:H20
O30
O40
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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