The positive impact of investment subsidies on the economy with present-biased consumers

This paper suggests a corporate investment subsidy policy as a remedy for an economy with present-biased consumers. Previous research has focused on government policies aimed at correcting consumers' present-biased behavior such as savings or capital subsidies. However, these policies are only effective when the capital market is complete. Thus, an investment subsidy policy is more practical and is often conducted by governments in the form of corporate tax reductions and direct investment grants. A steady-state analysis displays the effectiveness of utilizing subsidy policies in recovering present-bias induced losses. (C) 2022 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.