Abstract:
Germany has introduced a comprehensive package of staggered business tax breaks to accelerate business investment and give new momentum to economic growth. The key components of the so-called investment booster program are a temporary tax write-off on machinery and other equipment investments to a maximum of 30% in 2025, 2026, and 2027, followed by a stepwise permanent reduction of the corporate tax rate from 15% to 10% between 2028 and 2032. We first present a stochastic general equilibrium (DSGE) modeling setup and baseline results for the enacted unconventional policy measures incentivizing investment, then assess counterfactual policy regimes including various red tape streamlining supply shock scenarios. Overall, the insights into the unconventional reform package provide actionable guidelines for the design of business tax breaks aimed at stimulating investment.