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Quantifying Optimal Growth Policy

Volker Grossmann (), Thomas Steger () and Timo Trimborn ()

No 3092, CESifo Working Paper Series from CESifo Group Munich

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.

Keywords: economic growth; endogenous technical change; optimal growth policy; tax-transfer system; transitional dynamics (search for similar items in EconPapers)
JEL-codes: H20 O30 O40 (search for similar items in EconPapers)
Date: 2010
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Related works:
Journal Article: Quantifying Optimal Growth Policy (2016) Downloads
Working Paper: Quantifying Optimal Growth Policy (2010) Downloads
Working Paper: Quantifying Optimal Growth Policy (2010) Downloads
Working Paper: Quantifying Optimal Growth Policy (2010) Downloads
Working Paper: Quantifying Optimal Growth Policy (2010) Downloads
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