Working Paper Series, Department Economics, Swedish University of Agricultural Sciences
Luca Di Corato
Investment stimuli under government present-biased time preferences
Abstract: This paper examines the net benefit accruing to a
present-biased government contemplating the option of speeding up
investment using a tax cut or an investment subsidy as an incentive. The
literature generally suggests the use of an investment subsidy rather than
a tax cut. However, this study shows that, depending on the degree of
present-biasedness, it may be more advantageous for the government to
provide a tax cut.
Keywords: Investment; Tax reduction; Investment subsidy; Quasi-hyperbolic discounting; Real options; (follow links to similar papers)
JEL-Codes: C61; H20; (follow links to similar papers)
7 pages, March 13, 2014
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