Investment Tax Incentives and Their Big Time-to-Build Fiscal Multiplier
04 November 2019
14T12:09:33Z November 2019
This paper studies how investment tax incentives stimulate output in a medium-scale DSGE model, which allows for a variety of fiscal funding mechanisms. We find that the horizon following a positive shock in investment tax incentives is crucial. The shock is highly expansionary in the long run with the relevant fiscal multiplier substantially exceeding 1, but this effect only becomes visible after two to three years. Our analysis indicates that a rise in the marginal product of labor and the demand for labor trigger this expansion, which is an effect that partial equilibrium studies ignore. Our analysis also contributes to the time-to-build profile of the fiscal multiplier. The results suggest that investment tax incentives are even more effective when nominal wages adjust faster.
Cataloguer's note: This item was previously submitted and listed as WP19/27, November 2019. PDF and citation information (publication date, series number) replaced in this record with updated version on 2022-05-12.
Type of Material
University College Dublin. School of Economics
UCD Centre for Economic Research Working Paper Series
Copyright (Published Version)
2019 the Authors
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License