Abstract: As an incentive to increase high-impact investment and boost growth, the German Federal Government is planning to introduce a targeted temporary super depreciation allowance to support much-needed green and digital transitions. Using a calibrated multi-sector DSGE model, we find that the temporary super deduction could trigger an uplift of 10 percentage points for green and digital capital spending, turbo-charging green growth ambitions. However, with the temporary measure set to end after two years, there is a risk that business investment could tail off at a crucial time, when post-COVID-19 recovery is levelling out. Thus, additional longer-term climate policies are needed to drive the green transition, facilitated by broad policy packages.

Keywords: Climate economics, business taxation, firm investment, depreciation allowances, DSGE model, Germany

JEL-codes: E22, E60, H25, Q54, Q58

Authors:

Michael Funke, Department of Economics and Finance, Taltech and Hamburg University
Raphael Terasa, Hamburg University

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP), which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the IBEP seminar coordinator Kadri Männasoo, kadri.mannasoo@taltech.ee.