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The positive impact of investment subsidies on the economy with present-biased consumers

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  • Kang, Minwook

Abstract

This paper suggests a corporate investment subsidy policy as a remedy for an economy with present-biased consumers. Previous research has focused on government policies aimed at correcting consumers’ present-biased behavior such as savings or capital subsidies. However, these policies are only effective when the capital market is complete. Thus, an investment subsidy policy is more practical and is often conducted by governments in the form of corporate tax reductions and direct investment grants. A steady-state analysis displays the effectiveness of utilizing subsidy policies in recovering present-bias induced losses.

Suggested Citation

  • Kang, Minwook, 2022. "The positive impact of investment subsidies on the economy with present-biased consumers," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 229-235.
    • Handle: RePEc:eee:quaeco:v:85:y:2022:i:c:p:229-235
    DOI: 10.1016/j.qref.2022.03.006
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    Cited by:

    1. Kang, Minwook & Ye, Lei Sandy, 2023. "Dividend and corporate income taxation with present-biased consumers," Journal of Banking & Finance, Elsevier, vol. 152(C).
    2. Maebayashi, Noritaka, 2024. "Sustainability of public debt, investment subsidies, and endogenous growth with heterogeneous firms and financial frictions," MPRA Paper 120884, University Library of Munich, Germany.

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    More about this item

    Keywords

    Investment subsidy; Corporate tax policy; Present-biased preferences; Hyperbolic discounting;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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