Investment Tax Credit in an Open Economy
This paper contrasts the effects of a permanent and temporary investment tax credit in an open economy. In both cases an ITC will initially stimulate investment, while reducing employment and output, and generating a current account deficit. If the ITC is permanent, the accumulation of capital leads to a higher equilibrium capital stock, higher employment and output, and a reduction in the economy's stock of net credit. If the ITC is temporary, after its removal, the economy eventually moves to a new steady-state equilibrium having a lower permanent capital stock and employment, together with a higher stock of net credit.
|Date of creation:||Mar 1990|
|Date of revision:|
|Publication status:||published as Journal of Public Economics, Vol. 42, No. 3, pp. 277-299, (August 1990).|
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