TY  - RPRT
        AU  - Grossmann, Volker
AU  - Steger, Thomas M.
AU  - Trimborn, Timo
        TI  - Quantifying Optimal Growth Policy
        PY  - 2010/Jun/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 5007
        UR  - https://www.iza.org/publications/dp5007
        AB  - 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.
        KW  - economic growth
KW  - tax-transfer system
KW  - transitional dynamics
KW  - optimal growth policy
KW  - endogenous technical change
        ER  -