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http://hdl.handle.net/10419/36829
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| Title: | | Quantifying optimal growth policy  |
| 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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