NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Ana-Maria Mocanu

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NBER Working Papers and Publications

May 2017Stimulus Effects of Investment Tax Incentives: Production versus Purchases
with Christopher L. House, Matthew D. Shapiro: w23391
The distinction between production and purchases of investment goods is essential for quantifying the response to changes in investment tax incentives. If investment goods are tradeable, a large fraction of the demand from changes in tax subsidies will be met from abroad. This difference between production and purchases implies that investment tax incentives will lead to more capital accumulation, but less stimulus to economic activity relative to a no-trade counterfactual. Domestic capacity to produce investment goods is less than perfectly elastic because of quasi-fixed factors of production, adjustment costs, and specialization of labor. This paper builds these features into a DGSE model where key parameters are estimated to match the reduced-form response of investment production and p...
 
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