Investment Externalities and a Corrective Subsidy
Journal
International Tax and Public Finance
ISSN
0927-5940
ISSN-Digital
1573-6970
Type
journal article
Date Issued
1998-10-01
Author(s)
Abstract
The paper proposes an intertemporal equilibrium model that highlights the interdependence between aggregate investment and the degree of product differentiation with free entry of monopolistic producers. An investment externality is identified that results in underaccumulation of capital in the decentralized market equilibrium. Some form of investment promotion is called for. The paper compares the effectiveness of a general investment tax credit and an ad valorem output subsidy with policies that favor smaller business size. It is also shown that the complementarity among individual investments creates a potentially powerful investment multiplier.
Language
English
Keywords
Monopolistic competition
diversification of production
investment multiplier
underaccumulation of capital
small businesses.
HSG Classification
not classified
Refereed
No
Publisher
Springer Dordrecht
Publisher place
Dordrecht /NL
Volume
5
Number
4
Start page
449
End page
469
Pages
21
Subject(s)
Eprints ID
21972