Tax Reform and Corporate Investment: A Microeconometric Simulation Study
AbstractThis paper develops a methodology for simulating the effects of alternative corporate tax reforms on the stock market valuation and investment plans of individual firms. The methods are applied to estimate the effects of alternative corporate tax reforms on the 30 Dow Jones companies. The estimates are all based on extensions of Tobin's "q Theory of Investment" to take account of the effects of tax policy. As well as providing the basis for the estimates of the effects of tax policy, the results here provide strong microeconometric support for the q theory of investment. The q theory approach provides a superior method for estimating the effects of investment incentives because it recognizes the effects of changes in the cost of capital on the desired level of output. The results suggest that some potential tax reforms could have potent effects, which vary widely among firms. For example, complete indexation of the tax system would raise the Dow Jones average by an estimated 7.6 percent. The variance among companies is substantial with the effect ranging from -13 percent for Sears to 20 percent for American Brands.
Download InfoIf 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.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0757.
Date of creation: Aug 1984
Date of revision:
Publication status: published as Michael Salinger, Lawrence H. Summers. "Tax Reform and Corporate Investment: A Microeconometric Simulation Study ," in Martin Feldstein, ed., "Behavioral Simulation Methods in Tax Policy Analysis" University of Chicago Press (1983)
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Michael Salinger & Lawrence H. Summers, 1983. "Tax Reform and Corporate Investment: A Microeconometric Simulation Study," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 247-288 National Bureau of Economic Research, Inc.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.