The effects of the promotive measures investment

Abstract

The purpose of this work is to try to measure the effects of subsidies on fixed capital investment during the period 1963 - 1980 employing a Neoclassical theory of optimum capital formation. The promotive measures adopted are as follows; a) Tax rebates for investment, b) Custom tax installments c) Complete and partial custom tax exemptions, d) Low interest investment credits. This research is composed of six sections. In the first section, the Neoclassical theory of optimal capital formation is summarised and the theory is extended in order to cover the effects of tax rebates for investmend. In the second and third sections Dale W. Jorgenson's "Neoclassical" investment model and econometrics of the model are discussed, respectively. In the forth section, the adopted promotive measures are described and the effects of promotive measures on the determination of the price of capital services are calculated. In the fifth section, Dale W.Jorgenson's theory of investment which was discussed in the previous sections applied to annual Turkish data for the period 1958 - 1980 and using the price of capital services data calculated in section Four, the coefficients of the investment function is determined. In the final section, the cost of capital services in case of no promotive measures i.s calculated and given the coefficients of the investment function determined in section Five, the investment levels in the case of no promotive measures are estimated. The difference between the actual gross investment levels and the estimated gross investment levels in case of no subsidy is the amount of increase caused by the promotive measures on gross investment. Then, the cost of capital services are calculated seperatly in the case of only taxrebates for investment, only custom tax installments, only complete and partial custom tax exemptions and only low interest investment credits are to be applied. The weights are given to the each promotive measure according to the difference between the cost of capital services in case of no subsidy and only that promotive measure is applied. The amount of increase caused by the promotive measures is distributed among the subsidies according to the given weights in order to obtain the individual effectsof each promotive measure.