NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Investment Tax Credit in an Open Economy

Partha Sen, Stephen J. Turnovsky

NBER Working Paper No. 3298 (Also Reprint No. r1533)
Issued in March 1990
NBER Program(s):   ITI   IFM

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.

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Document Object Identifier (DOI): 10.3386/w3298

Published: Journal of Public Economics, Vol. 42, No. 3, pp. 277-299, (August 1990).

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