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 InfoPaper provided by Economic Growth Center, Yale University in its series Working Papers with number 858.
Length: 28 pages
Date of creation: Jul 2003
Date of revision:
Publication status: Published in Journal of Development, Vol. 73, No. 2, 2004
Other versions of this item:
- Bustos, Alvaro & Engel, Eduardo M. R. A. & Galetovic, Alexander, 2004. "Could higher taxes increase the long-run demand for capital? Theory and evidence for Chile," Journal of Development Economics, Elsevier, vol. 73(2), pages 675-697, April.
- 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.
- 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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