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|Title:||Quantifying optimal growth policy |
Steger, Thomas M.
|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.|
endogenous technical change
optimal growth policy
|Document Type:||Working Paper|
|Appears in Collections:||IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)|
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