Business Tax Incentives and Investment

Economists of all stripes view a rise in investment spending as the cure for nearly any macroeconomic disorder. Given that only public investment is amenable to direct control, how is the "optimal" level of investment in a given economy ensured? One route is through public policies aimed at producing incentives for private sector investment. In this paper, Karier evaluates the efficacy of one such program, the investment tax credit (ITC), in stimulating private investment expenditures. (The credit was in place sporadically and in various forms between the years 1966 and 1987 and applied only to investment in machinery, equipment, and furniture.)