| Summary: | It is necessary to carry out new investments for developing countries to achieve their economic development and for developed countries to sustain their economic development levels. Therefore, investments can be encouraged by the tax policies. To increase new investments by the tax policy one of the tools that can be used is the investment tax credit. The certain percentage of this investment is deducted from the earnings of investor and the goverment exempts taxes for these earnings. It is argued that investment tax credit policy hastwo effects namely substitution effect and income effect. On the one hand substitution effect assists to direct investment in required fields. On the other hand income effect reduces total cost of entrepreneur capital. Therefore, these effects help to direct total investments to desired fields. Thus, to achieve particular objective investment tax credit policy should be analyzed wery well before it is implemented. In this study economic effects of investment tax credit are examined for the period 1997-2001 in Turkey.
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