Investment-Promoting Policies in the Presence of International Interactions

Investment-promoting policies in a small open economy are analyzed by means of a dynamic applied general equilibrium model with overlapping generations. Simulations of a decrease of the corporate income tax rate and an increase of the investment tax credit rate are discussed and compared. This paper...

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Bibliographic Details
Published inJournal of policy modeling Vol. 20; no. 6; pp. 715 - 740
Main Author Bettendorf, Leon
Format Journal Article
LanguageEnglish
Published New York Elsevier Inc 01.12.1998
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Policy Modeling
Subjects
Capital
Corporate income tax
Economic models
International trade
Investment policy
Investment tax credits
Simulation
Studies
Tax rates
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Summary:Investment-promoting policies in a small open economy are analyzed by means of a dynamic applied general equilibrium model with overlapping generations. Simulations of a decrease of the corporate income tax rate and an increase of the investment tax credit rate are discussed and compared. This paper examines in particular the extent to which international trade and capital flows interfere in both tax policies. The modeling of overlapping generations allows moreover to identify the winners and losers of these reforms. It is shown that the subsidy policy is preferred to the profit tax policy when a small open economy seeks to stimulate capital formation.
ISSN:0161-8938
1873-8060
DOI:10.1016/S0161-8938(97)00051-3