Quantifying Optimal Growth Policy

Volker Grossmann, Thomas Steger and Timo Trimborn

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

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 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)
Pages: 31 pages
Date: 2010-09
References: Add references at CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Quantifying Optimal Growth Policy (2016)
Working Paper: Quantifying Optimal Growth Policy (2010)
Working Paper: Quantifying Optimal Growth Policy (2010)
Working Paper: Quantifying Optimal Growth Policy (2010)
Working Paper: Quantifying Optimal Growth Policy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:deg:conpap:c015_051

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