A subsidy for companies would increase investment in Australia by two to three times more than corporate tax cuts, with larger flow-on benefits to wages, a new study has found.

The study by two Victoria University academics, released on Tuesday, measures the effectiveness of investment stimulus policies in Australia. It gives some support for Turnbull government claims a company tax cut can boost employment and wages, but concludes that an investment subsidy is the superior option.

In March the Turnbull government delayed cutting the tax rate from 30% to 25% over 10 years for companies with revenues over $50m, after failing to secure support from senators Derryn Hinch and Tim Storer.

The impact of tax cuts on the economy is central to the lobbying on both sides. Opponents argue almost half the benefit of tax cuts will flow to overseas investors, while Treasury officials estimate the tax cut would boost wages by just $750 over time.

The study by Janine Dixon and Jason Nassios to be presented at the Melbourne Economic Forum found that for a fixed budgetary cost of $5bn, the government could cut company tax by 3.8% or give an investment subsidy of 1.6%.

The researchers concluded that “the investment subsidy is between two and three times more effective as a stimulus to investment than the company tax rate cut”.

The investment subsidy “enables the full $5bn package to be deployed on increasing post-tax rates of return on capital and inducing a relatively large investment response”, the researchers wrote.

The company tax cut “has limited effectiveness in changing the post-tax rate of return for domestic investors, because of the impact of dividend imputation”.

As a result, “the response to the company tax cut is strongly skewed toward foreign investors”, whereas the investment subsidy leads to a “relatively evenly spread response” from both local and foreign investors.

The study found both policies lead to increases in gross domestic product, employment and real pre-tax wages. But it suggests a company tax cut would boost wages by 0.3% by 2036, half the expected boost of 0.6% from the investment subsidy.

In addition to stimulating higher investment, the study also found an investment subsidy would protect the revenue stream on legacy capital so it “is not a drain on national income”.

Labor has pledged to repeal tax cuts for big businesses if they pass the Senate, but is holding out on the prospect of future tax relief for businesses prepared to invest locally. It has also argued, based on research by the shadow assistant treasurer, Andrew Leigh, that companies that pay less tax create fewer jobs.

Despite the Turnbull government’s claims that the $30bn cost of the second phase of company tax cuts is fully funded, the Victoria University study argues the government has no “decisive proposal” of how it will be financed.

“Bracket creep – an effective increase in the personal income tax rate – appears to be the most likely source of funding,” the researchers wrote.

The study explores options for funding either policy, including Labor’s plan to deny cash refunds for franking credits or a combination of discounting franking credits and a one-off increase in personal income tax of 0.2%.

It finds that “fully funded, the investment subsidy is still an effective means by which to raise investment, employment, GDP and the real pre-tax wage”.

“In terms of improving the material welfare of the Australian population, the impact on gross national income is positive for the investment subsidy, but not for the company tax rate cut,” the researchers wrote.

While the government is confident it can win Hinch’s vote, Storer is holding out for a broader tax reform debate, including a boost to the Newstart unemployment benefit, although he insists he won’t horse-trade for his vote, which could be decisive for the fate of the tax cut package.