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Taxation and Corporate Investment: The Impact of the 1991 Swedish Tax Reform

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Author Info

  • Auerbach, A.J.
  • Hassett, K.
  • Sodersten, J.

Abstract

In 1990, the government of Sweden introduced a major tax reform to take effect in 1991. The Swedish system prior to the legislation was so complex that the size and magnitude of the likely effects of the reform on incentives to invest were unknown. In this paper, we draw on S”dersten (1989) and Auerbach and Hassett (1992) and derive an expression for the user cost of capital that captures the essential features of the Swedish tax code both before and after the reform. We estimate the model for investment in equipment and find that the responsiveness of Swedish firms to the user cost is quite similar to that found for the U.S. Finally, we employ our model and estimates to assess the effects of the 1991 reform. We find that the impact of the reform on investment is likely to have been minor and had little to do with the contemporaneous sharp drop in investment.

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Bibliographic Info

Paper provided by Uppsala - Working Paper Series in its series Papers with number 8.

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Length: pages
Date of creation: 1995
Date of revision:
Handle: RePEc:fth:uppaal:8

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Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: INVESTMENTS; TAX POLICY; ECONOMIC REFORM;

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References

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  1. Sodersten, Jan, 1989. " The Investment Funds System Reconsidered," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(4), pages 671-87.
  2. Alan J. Auerbach, 1990. "Tax Reform and Adjustment Costs: The Impact on Investment and Market Value," NBER Working Papers 2103, National Bureau of Economic Research, Inc.
  3. Alan J. Auerbach & Kevin Hassett, 1992. "Tax Policy and Business Fixed Investment in the United States," NBER Working Papers 3619, National Bureau of Economic Research, Inc.
  4. Dufwenberg, Martin & Koskenkyla, Heikki & Sodersten, Jan, 1994. " Manufacturing Investment and Taxation in the Nordic Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 443-61.
  5. John B. Taylor, 1982. "The Swedish Investment Funds System as a Stabilization Rule," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 57-106.
  6. Bergstrom, Villy & Sodersten, Jan, 1984. " Do Tax Allowances Stimulate Investment?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(2), pages 244-68.
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Cited by:
  1. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
  2. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1996. "Tax Reforms and Investment: A Cross-Country Comparison," NBER Working Papers 5232, National Bureau of Economic Research, Inc.
  3. Hovick Shanazarian, 2006. "Corporate Financial Dynamics: A Pecking-Order Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(4), pages 516-534, February.

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