Quantifying Optimal Growth Policy

Volker Grossmann, Thomas Steger and Timo Trimborn

No 5007, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The optimal mix of growth policies is derived within a comprehensive endogenous growth model. The analysis captures important elements of the tax-transfer system and takes into account 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; tax-transfer system; transitional dynamics; optimal growth policy; endogenous technical change (search for similar items in EconPapers)
JEL-codes: H20 O30 O40 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2010-06
New Economics Papers: this item is included in nep-dge and nep-ino
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Citations: View citations in EconPapers (17)

Forthcoming - published in: Journal of Public Economic Theory, 2016, 18 (3), 451-485

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https://docs.iza.org/dp5007.pdf (application/pdf)

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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