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|Title:||Quantifying optimal growth policy |
Steger, Thomas M.
|Issue Date:||2010 |
|Series/Report no.:||CESifo working paper Fiscal Policy, Macroeconomics and Growth 3092|
|Abstract:||The optimal mix of growth policies is determined within a comprehensive endogenous growth model. The analysis captures important elements of the tax-transfer system and accounts for 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
|Document Type:||Working Paper|
|Appears in Collections:||CESifo Working Papers, CESifo Group Munich|
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