Commentary: Investment Policies to Promote Growth,” in A. Auerbach et al

Several papers at this conference have stressed the favorable effect on economic growth of increases in business investment, especially investment in machinery and equipment. The authors of these papers have reminded us that such investment does more than increase the capital stock. Investment also embodies new technologies and may involve externalities that cause the national return to private invest-ment to be greater than the private return to the firm that does the investing. Such externalities would justify substantial tax subsidies to invest-ment in machinery and equipment. The existence of externalities would also help to explain the substantial differences in short-run growth rates among countries that appear to be associated with dif-ferences in their rates of investment (although it would not explain persistent differences in growth rates over very long periods of time). It would be a mistake, however, to conclude that the case for ta