Could higher taxes increase the long-run demand for capital? Theory and evidence for Chile
AbstractOn theoretical grounds alone, there is no a priori reason why higher taxes should reduce the desired capital stock, since a tax increase reduces marginal returns but also increases depreciation and interest payment allowances. Using a panel of Chilean corporations, this paper estimates a long-run demand for capital valid for a general adjustment-cost structure. Changes in the corporate tax rate are found to have no effect on the long run demand for capital. Furthermore, when making investment decisions, firms ignore the marginal rates paid by their stockholders, suggesting the presence of a corporate veil.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 73 (2004)
Issue (Month): 2 (April)
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Web page: http://www.elsevier.com/locate/devec
Other versions of this item:
- Alvaro Bustos & Eduardo Engel & Alexander Galetovic, 2002. "Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidences for Chile," Documentos de Trabajo 145, Centro de Economía Aplicada, Universidad de Chile.
- Alvaro Bustos & Eduardo Engel & Alexander Galetovic, 2003. "Could Higher Taxes Increase the Long-Run Demand for Capital? Theory and Evidence for Chile"," Working Papers 858, Economic Growth Center, Yale University.
- Eduardo M. Engel & Alvaro Bustos & Alexander Galetovic, 2004. "Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidence for Chile," Yale School of Management Working Papers ysm408, Yale School of Management.
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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