Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228175
Authors: 
Bermperoglou, Dimitrios
Deli, Yota
Kalyvitis, Sarantis
Year of Publication: 
2019
Series/Report no.: 
Working Paper Series No. WP19/27
Abstract: 
This paper studies how investment tax incentives stimulate output in a medium-scale DSGE model, which allows for a variety of fiscal financing mechanisms. We find that the horizon following a positive shock in investment tax incentives is crucial. The shock is highly expansionary in the long run, with the relevant fiscal multiplier substantially exceeding 1, but this effect only becomes visible after two to three years. Our analysis indicates that a rise in the marginal product of labor and the demand for labor trigger this expansion, which is an effect that partial equilibrium studies ignore. Our analysis also contributes to the time-to-build profile of the fiscal multiplier. The results suggest that investment tax incentives are even more effective when nominal wages adjust faster.
Subjects: 
private investment incentives
investment tax credit
fiscal multiplier
JEL: 
E32
E60
E62
Document Type: 
Working Paper

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