Tambela Vaughn_ECO-610-X2269 Fiscal & Monetary Policies 15TW2_Module 7_Short Paper

Tambela Vaughn_ECO-610-X2269 Fiscal & Monetary Policies 15TW2_Module 7_Short Paper

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
It is generally believed by some that countercyclical policies, such as, increasing the investment tax credit, lowering taxes (especially for capital gains) will facilitate growth acting as an incentive to invest and hire. From the Keynesian prospective, taxes should be cut and spending should be increased to counteract shocks in the economy and to facilitate growth. It has been hypothesized that firms, if credit-constrained, will be greatly affected by recessions (economic downturns) because they will be unable to sustain productivity enhancing investments and will be forced to cut such activities because they cannot levy capital to finance them. Research by Ramey and Ramey (1995) and Aghion (2010) has produced analyses which support this fact; thus, it seems that cyclical stabilization policies could possibly facilitate growth within these credit-constrained firms[Mis12]. Firms are motivated to invest when the rental cost of capital is decreased; meaning the tax rate is less than the subsidies. “Increases in the tax rate reduce the incentive to add capital; subsidies promote the accumulation of capital.” To illustrate this I will utilize a similar example like the one from
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern