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Lumpy Investment and Corporate Tax Policy

Jianjun Miao () and Pengfei Wang ()

Journal of Money, Credit and Banking, 2014, vol. 46, issue 6, 1171-1203

Abstract: In the presence of both convex and nonconvex capital adjustment costs in a dynamic general equilibrium model, corporate tax policy generates both intensive and extensive margin effects via the channel of marginal Q. Its impact is determined largely by the strength of the extensive margin effect, which, in turn, depends on the cross‐sectional distribution of firms. Depending on the initial distribution of firms, the economy displays asymmetric responses to tax changes. Moreover, an anticipated increase in the future investment tax credit reduces investment and adjustment rate initially.

Date: 2014
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