Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/38919
Authors: 
Grossmann, Volker
Steger, Thomas M.
Trimborn, Timo
Year of Publication: 
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

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