Advanced Search
MyIDEAS: Login to save this paper or follow this series

Inflation, Taxation, and Corporate Investment: A q-Theory Approach


Author Info

  • Lawrence H. Summers


This paper presents an analysis of the effects of tax policy on capital accumulation and valuation based on James Tobin's q theory of investment. As Tobin has explained, aggregate investment can be expected to depend in a stable way on q, the ratio of the stock market valuation of existing capita1 to its replacement cost. For example, increases in the rate of return on physical capital raise its market value and cause increased investment until equilibrium is restored. Although models linking the stock market to investment have been estimated, they have not previously been used to examine the impact of tax policies. The basic idea underlying the approach taken here can be described quite simply. It is generally assumed that the stock market valuation of corporate capital represents the present value of its future dividend stream. In the model of this paper, the effects of tax changes on future profits are used to estimate the impact of those changes on the stock market. These estimates in turn are used as a basis for gauging the impact of the tax changes on capital formation. This approach, working through q, can provide estimates of the effects of policy announcements and of personal tax reforms as well as estimates of the distributional impact of alternative reforms. A distinct feature of the model developed here is that it is rooted in a microeconomic theory that integrates the interests of the corporation and its shareholders.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0604.

as in new window
Date of creation: Dec 1980
Date of revision:
Publication status: published as Summers, Lawrence H. "Taxation and Corporate Investment: A q-Theory Approach." Brookings Papers on Economic Activity, 1:1981, pp. 67-127.
Handle: RePEc:nbr:nberwo:0604

Note: PE EFG
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page:
More information through EDIRC

Related research



No references listed on IDEAS
You can help add them by filling out this form.


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jacques Mairesse & Alan K. Siu, 1984. "An Extended Accelerator Model of R&D and Physical Investment," NBER Chapters, National Bureau of Economic Research, Inc, in: R & D, Patents, and Productivity, pages 271-298 National Bureau of Economic Research, Inc.
  2. William P. Osterberg, 1992. "Debt, collateral, and U.S. manufacturing investment: 1954-1980," Working Paper, Federal Reserve Bank of Cleveland 9210, Federal Reserve Bank of Cleveland.
  3. Michael Dworsky & Lawrence Goulder & Marc Hafstead, 2009. "Impacts of Alternative Emissions Allowance Allocation Methods Under a Federal Cap-and-Trade Program," Discussion Papers, Stanford Institute for Economic Policy Research 08-048, Stanford Institute for Economic Policy Research.
  4. Klette, Tor Jakob & M√łen, Jarle, 2011. "R&D investment responses to R&D subsidies: A theoretical analysis and a microeconometric study," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2011/15, Department of Business and Management Science, Norwegian School of Economics.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0604. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.