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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.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Technology and Growth B1-V3
Abstract:This paper develops a comprehensive endogenous growth framework to derive the optimal growth policy. The analysis is novel in that we capture important elements of the tax-transfer system and fully take into account transitional dynamics in our numerical analysis. US firms can currently about fully deduct their R&D and capital costs for calculating taxable corporate income. Our analysis suggests that the status quo 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 from sales revenue. 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:O30
H20
O40
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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