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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/38919
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| Title: | | Quantifying optimal growth policy  |
| Authors: | | Grossmann, Volker Steger, Thomas M. Trimborn, Timo |
| 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 tax-transfer system transitional dynamics |
| JEL: | | H20 O30 O40 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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