Investment Externalities and a Corrective Subsidy

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Investment Externalities and a Corrective Subsidy

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Christian Keuschnigg

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Christian Keuschnigg

Abstract

The paper proposes an intertemporal equilibrium model that highlights the interdependence between aggregate investment and the degree of product differentiation with free entry of monopolistic producers. An investment externality is identified that results in underaccumulation of capital in the decentralized market equilibrium. Some form of investment promotion is called for. The paper compares the effectiveness of a general investment tax credit and an ad valorem output subsidy with policies that favor smaller business size. It is also shown that the complementarity among individual investments creates a potentially powerful investment multiplier. Copyright Kluwer Academic Publishers 1998

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 5 (1998)
Issue (Month): 4 (October)
Pages: 449-469
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Handle: RePEc:kap:itaxpf:v:5:y:1998:i:4:p:449-469

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February. [Downloadable!] (restricted)
Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-99, April. [Downloadable!] (restricted)
Other versions:
- Dixon, H. & Rankin, N., 1991. "Imperfect Competition and Macroeconomics: a Survey," The Warwick Economics Research Paper Series (TWERPS) 387, University of Warwick, Department of Economics.
- Dixon, Huw David & Rankin, Neil, 1992. "Imperfect Competition and Macroeconomics: A Survey," CEPR Discussion Papers 636, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September. [Downloadable!] (restricted)
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Keuschnigg, Christian & Kohler, Wilhelm, 1996. "Commercial policy and dynamic adjustment under monopolistic competition," Journal of International Economics, Elsevier, vol. 40(3-4), pages 373-409, May. [Downloadable!] (restricted)
Other versions:
- Keuschnigg, Christian & Kohler, Wilhelm K., 1994. "Commercial Policy and Dynamic Adjustment Under Monopolistic Competition," CEPR Discussion Papers 1037, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Robert G. King & Sergio Rebelo, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," NBER Working Papers 3338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- King, R.G. & Rebelo, S., 1988. "Public Policy And Economic Growth: Developing Neoclassical Implications," RCER Working Papers 225, University of Rochester - Center for Economic Research (RCER).
- King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S126-50, October. [Downloadable!] (restricted)
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Other versions:
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Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
Other versions:
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics. [Downloadable!]
Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc. [Downloadable!]
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Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June. [Downloadable!] (restricted)
Other versions:
- Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May. [Downloadable!] (restricted)
Other versions:
- J. Bradford De Long & Lawrence H. Summers, . "Equipment Investment and Economic Growth," J. Bradford De Long's Working Papers _122, University of California at Berkeley, Economics Department. [Downloadable!]
- J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Keuschnigg, Christian, 2006. "Exports, Foreign Direct Investment and the Costs of Coporate Taxation," CEPR Discussion Papers 5769, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Christian Keuschnigg, 2007. "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Christian Keuschnigg, 2007. "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," Working Papers 0708, Oxford University Centre for Business Taxation. [Downloadable!]
- Christian Keuschnigg, . "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," FIW Working Paper series 005, FIW. [Downloadable!]
- Christian Keuschnigg, 2006. "Exports, Foreign Direct Investment and the Costs of Corporate Taxation," University of St. Gallen Department of Economics working paper series 2006 2006-17, Department of Economics, University of St. Gallen. [Downloadable!]
- Christian Keuschnigg, 2008. "Exports, foreign direct investment, and the costs of corporate taxation," International Tax and Public Finance, Springer, vol. 15(4), pages 460-477, August. [Downloadable!] (restricted)
Heijdra, Ben J. & Keuschnigg , Christian & Kohler, Wilhelm, 2002. "Eastern Enlargement of the EU: Jobs, Investment and Welfare in Present Member Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Heijdra, Ben J. & Keuschnigg, Christian & Kohler, Wilhelm, 2002. "Eastern enlargement of the EU: jobs, investment and welfare in present member countries," CCSO Working Papers 200213, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
- Ben J. Heijdra & Christian Keuschnigg & Wilhelm Kohler, 2001. "Eastern enlargement of the EU: Jobs, investment and welfare in present member countries," Economics working papers 2001-11, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
Wilhelm Kohler, 2003. "Eastern Enlargement of the EU: A Comprehensive Welfare Assessment," Economics working papers 2003-16, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
Wilhelm Kohler & Christian Keuschnigg, 2000. "An Incumbent Country View on Eastern Enlargement of the EU Part I: A General Treatment," Empirica, Springer, vol. 27(4), pages 325-351, December. [Downloadable!] (restricted)
Other versions:
- Wilhelm Kohler & Christian Keuschnigg, 2000. "An incumbent country view on eastern enlargement of the EU Part I: A general treatment," Economics working papers 2000-25, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, The European Institute of Japanese Studies.
Other versions:
- Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," CEPR Discussion Papers 3775, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Magnus Blomstrom & Ari Kokko, 2003. "The Economics of Foreign Direct Investment Incentives," NBER Working Papers 9489, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Kohler, Wilhelm, 2004. "Eastern Enlargement of the EU: A Comprehensive Welfare Assessment," Discussion Paper Series 26377, Hamburg Institute of International Economics. [Downloadable!]

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