Investment Tax Incentives and Their Big Time-to-Build Fiscal Multiplier

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Title: Investment Tax Incentives and Their Big Time-to-Build Fiscal Multiplier
Authors: Bermperoglou, DimitriosDeli, YotaKalyvitis, Sarantis
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Date: 4-Nov-2019
Online since: 2019-11-14T12:09:33Z
Abstract: 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.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP2019/27
Copyright (published version): 2019 the Authors
Keywords: Private investment incentivesInvestment tax creditFiscal multiplier
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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