ON THE FORMULATION AND EVALUATION OF INVESTMENT TAX INCENTIVES.
Item
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Title
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ON THE FORMULATION AND EVALUATION OF INVESTMENT TAX INCENTIVES.
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Identifier
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AAI8629704
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identifier
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8629704
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Creator
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KAMP, LEO CHARLES.
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Contributor
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Herbert Geyer
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Date
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1986
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General
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Abstract
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The primary focus of this study is the development of a methodology for evaluating investment tax incentive programs from a budgetary perspective.;Public finance theory suggests that budgetary objectives, utilitarian considerations, and timing are important aspects that should be part of an evaluation of tax programs, such as investment tax incentives. An optimal stochastic control approach enables one to formulate an optimal incentive program based upon those considerations. This approach utilizes policy maker objectives, an econometric model, and dynamic programming to derive an optimal program and associated welfare costs. One then can compare actual and optimal programs and their welfare costs to ascertain how close an actual policy is to the optimal policy. This approach has potential problems--parameters in econometric models may vary with policy changes; and dynamic programming may result in nonoptimal policies. However, the latter problem depends upon the kind of model utilized; and the empirical significance of both problems is unclear.;The study then turned to a critical review of past evaluations. The studies reviewed focused on the narrow question of whether investment activity increased, ignoring the question of optimality presented in this report.;To illustrate technical feasibility and to detect implementation problems, an empirical illustration of the approach was undertaken, utilizing a small econometric model containing a single investment tax incentive variable. Utilizing a computer program written by this investigator, various optimal control calculations were made. One conclusion was that the choice of the incentive variable was not crucial, since large differences between optimal and actual measures showed only small differences in welfare cost. This conclusion was viewed as illustrative rather than definitive, since it is sensitive to the various inputs into the analysis. Specifying appropriate inputs is complicated by the presence of multiple fiscal policy makers in the U.S. Nevertheless, with appropriate specifications, this evaluation methodology could yield important information to policy makers.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
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Program
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Economics
