Discussion Paper Details

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Title: Business Formation and Aggregate Investment

Author(s): Christian Keuschnigg

Publication Date: November 1996

Keyword(s): Business Formation, Monopolistic Competition and Underaccumulation of Captial

Programme Area(s): International Macroeconomics

Abstract: The paper proposes an intertemporal equilibrium model with monopolistic competition and start-up investment with variable capacity to explain the nexus between business formation and medium-run growth. An investment externality is identified that results in under-accumulation of capital in the decentralized market equilibrium and, thus, creates investment multipliers. Some form of investment promotion is called for. The paper compares the effectiveness of policies to promote small business formation with a general investment tax credit.

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Bibliographic Reference

Keuschnigg, C. 1996. 'Business Formation and Aggregate Investment'. London, Centre for Economic Policy Research.