Investment Tax Credit in an Open Economy
Partha Sen, Stephen J. Turnovsky
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.
Document Object Identifier (DOI): 10.3386/w3298
Published: Journal of Public Economics, Vol. 42, No. 3, pp. 277-299, (August 1990). citation courtesy of