 Macroeconomic conditions and investment stimuliYingxian Tan, Zhihao Pan, Rui Wang and Chunhui Wen The North American Journal of Economics and Finance, 2023, vol. 67, issue C Abstract: Based on a calibrated real options model, this paper examines a tax-subsidy program offered by a government to stimulate corporate investment under business cycles. We derive and discuss optimal incentive policies for different states of the economy. We find that it is optimal for the government to offer a combination of tax cuts and lump-sum subsidy for stimulating levered firms’ investment under business cycles. Furthermore, the government should adopt counter-cyclical tax-subsidy policy, namely a higher (lower) tax cuts and a larger (smaller) lump-sum subsidy during recessions (booms). In particular, we provide a possible explanation why many governments around the world have reduced and even implemented negative interest rates to stimulate the economy during the COVID-19 pandemic in 2020. Finally, our conclusions also predict that the break-even tax-subsidy program always provides effective investment stimulus under business cycles. Keywords: Real options; Tax reduction; Investment subsidy; Business cycles; Investment stimuli (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:67:y:2023:i:c:s1062940823000396 DOI: 10.1016/j.najef.2023.101916 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.