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No expectation of demand, no investment, no matter how many tax breaks you give them.

True, but this tax cut would lower the internal rate of return required for investments, and hence increase investment, ceteris paribus. Furthermore, it would shift the economy towards higher capital intensity and hence allow higher salaries as the salary fraction of the total cost mass is lower for capital intensive business. This would, however, amount to industrial policy (gasp! oh noes!).


Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jan 27th, 2011 at 08:05:16 PM EST
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As stimulus goes, tax credits are a notoriously weak tool. The Americans have a great deal of experience in this matter, given their proclivity for fiddling with tax cuts when they should be building infrastructure. Their results are unimpressive.

As a structural policy tool, I quite like accelerated depreciation for its shrinking effect on balance sheets. But I strongly doubt that it's going to substantially alter the capital structure of a country. Although you could probably combine it with a reduction in the deduction for outgoing interest, and end up with a package that would discourage excessive leverage while remaining more or less distributionally neutral.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 27th, 2011 at 11:33:28 PM EST
[ Parent ]
Tax credits are viewed as a good in and of themselves by the US RW, provided they primarily benefit the wealthy. Calling one a tool is just to put a condom on it, for the protection of the wearer.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jan 29th, 2011 at 05:57:52 PM EST
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