Stimulus Effects of Investment Tax Incentives: Production versus Purchases / Christopher L. House, Ana-Maria Mocanu, Matthew D. Shapiro.

Format:

Book

Author/Creator:

House, Christopher L.

Contributor:

National Bureau of Economic Research.

Mocanu, Ana-Maria.

Shapiro, Matthew D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23391.

NBER working paper series no. w23391

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Stimulus Effects of Investment Tax Incentives

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

The distinction between production and purchases of investment goods is essential for quantifying the response to changes in investment tax incentives. If investment goods are tradeable, a large fraction of the demand from changes in tax subsidies will be met from abroad. This difference between production and purchases implies that investment tax incentives will lead to more capital accumulation, but less stimulus to economic activity relative to a no-trade counterfactual. Domestic capacity to produce investment goods is less than perfectly elastic because of quasi-fixed factors of production, adjustment costs, and specialization of labor. This paper builds these features into a DGSE model where key parameters are estimated to match the reduced-form response of investment production and purchases to tax incentives. Typical investment tax policies result in equipment purchases that are split roughly half between domestic and foreign production of equipment.

Notes:

Print version record

May 2017.