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Promoting Investment under International Capital Mobility: An Intertemporal General Equilibrium Analysis

  • Bovenberg, A Lans
  • Goulder, Lawrence H

Efficiency and distributional effects of two investment-oriented policies, an investment tax credit and a reduction in the statutory corporate income tax rate, are compared using a disaggregated general equilibrium model that uniquely combines intertemporal decision-making and international capital mobility. The domestic welfare consequences of these policies depend not only on intertemporal and intersectoral efficiency effects but also on international transfer effects, which favor (in terms of domestic welfare) the investment tax credit over cuts in the corporate tax rate. Simulations reveal important differences between policies in the consequences for balance of payments accounts, the real exchange rate, and industrial structure. Copyright 1993 by The editors of the Scandinavian Journal of Economics.

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 95 (1993)
Issue (Month): 2 ()
Pages: 133-56

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Handle: RePEc:bla:scandj:v:95:y:1993:i:2:p:133-56
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  1. Bovenberg, A Lans, 1989. "The Effects of Capital Income Taxation on International Competitiveness and Trade Flows," American Economic Review, American Economic Association, vol. 79(5), pages 1045-64, December.
  2. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
  3. James M. Poterba & Lawrence H. Summers, 1985. "The Economic Effects of Dividend Taxation," NBER Working Papers 1353, National Bureau of Economic Research, Inc.
  4. Duffie, Darrell & Zame, William, 1989. "The Consumption-Based Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 57(6), pages 1279-97, November.
  5. Robert C. Feenstra, 1989. "Trade Policies for International Competitiveness," NBER Books, National Bureau of Economic Research, Inc, number feen89-1, August.
  6. James M. Poterba & Julio J. Rotemberg, 1986. "Money in the Utility Function: An Empirical Implementation," NBER Working Papers 1796, National Bureau of Economic Research, Inc.
  7. Roger H. Gordon & James R. Hines Jr. & Lawrence H. Summers, 1986. "Notes on the Tax Treatment of Structures," NBER Working Papers 1896, National Bureau of Economic Research, Inc.
  8. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
  9. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Cowles Foundation Discussion Papers 564, Cowles Foundation for Research in Economics, Yale University.
  10. Jorgenson, Dale W & Yun, Kun-Young, 1986. " The Efficiency of Capital Allocation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 85-107.
  11. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
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