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Corporate Taxes and Incentives and the Structure of Production: A Selected Survey

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Author Info
Jeffrey I. Bernstein
M. Ishaq Nadiri

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Abstract

In this paper we develop a general intertemporal model of production, emphasizing the role of present and expected future corporate income taxes, credits and allowances along with costly adjustment and variable utilization of the quasi-fixed factors. Three specific issues are considered: 1) the direct and indirect effects of taxes operating through factor prices on the long-run input substitution, thus altering the structure of the production process; 2) the effects of tax policy changes on the rate and direction of technological change; and 3) the effects of tax policy on the inter- temporal pattern of substitutions and complementarities among the inputs that arise due to presence of quasi-fixity of some inputs. The rates of utilization of the quasi-fixed factors are determined in the short-run in conjunction with the demands for the variable factors of production. Hence, utilization rates depend on product and factor prices and therefore on tax policy. We specialize the general model in order to highlight each of the three themes and their interaction with tax policy. We also discuss the various ways in which empirical implementation of the theoretical models and a brief summary of the empirical results in the literature is also provided. Lastly, we discuss some policy implications which emerge from the analysis and empirical results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2579.

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Date of creation: Apr 1988
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Handle: RePEc:nbr:nberwo:2579

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Baily, Martin Neil, 1981. "The Productivity Growth Slowdown and Capital Accumulation," American Economic Review, American Economic Association, vol. 71(2), pages 326-31, May. [Downloadable!] (restricted)
  2. Epstein, Larry G. & Yatchew, Adonis J., 1985. "The empirical determination of technology and expectations : A simplified procedure," Journal of Econometrics, Elsevier, vol. 27(2), pages 235-258, February. [Downloadable!] (restricted)
  3. King, M. A., 1972. "Taxation and investment incentives in a vintage investment model," Journal of Public Economics, Elsevier, vol. 1(1), pages 121-147, April. [Downloadable!] (restricted)
  4. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August. [Downloadable!] (restricted)
  5. Coen, Robert M & Hickman, Bert G, 1970. "Constrained Joint Estimation of Factor Demand and Production Functions," The Review of Economics and Statistics, MIT Press, vol. 52(3), pages 287-300, August. [Downloadable!] (restricted)
  6. Mortensen, Dale T, 1973. "Generalized Costs of Adjustment and Dynamic Factor Demand Theory," Econometrica, Econometric Society, vol. 41(4), pages 657-65, July. [Downloadable!] (restricted)
  7. Clark, Peter K, 1982. "Inflation and the Productivity Decline," American Economic Review, American Economic Association, vol. 72(2), pages 149-54, May. [Downloadable!] (restricted)
  8. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February. [Downloadable!] (restricted)
  9. Blackorby, Charles & Schworm, William, 1983. " Aggregating Heterogeneous Capital Goods in Adjustment-Cost Technologies," Scandinavian Journal of Economics, Blackwell Publishing, vol. 85(2), pages 207-22.
  10. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1988. "Rates Of Return On Physical And R&D Capital And Structure Of The Production Process: Cross Section And Time Series Evidence," NBER Working Papers 2570, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Nadiri, M Ishaq & Rosen, Sherwin, 1969. "Interrelated Factor Demand Functions," American Economic Review, American Economic Association, vol. 59(4), pages 457-71, Part I Se. [Downloadable!] (restricted)
  12. Epstein, Larry G, 1981. "Generalized Duality and Integrability," Econometrica, Econometric Society, vol. 49(3), pages 655-78, May. [Downloadable!] (restricted)
  13. Mussa, Michael L, 1977. "External and Internal Adjustment Costs and the Theory of Aggregate and Firm Investment," Economica, London School of Economics and Political Science, vol. 44(174), pages 163-78, May. [Downloadable!] (restricted)
  14. Epstein, Larry G, 1981. "Duality Theory and Functional Forms for Dynamic Factor Demands," Review of Economic Studies, Blackwell Publishing, vol. 48(1), pages 81-95, January. [Downloadable!] (restricted)
  15. Diewert, W. E., 1973. "Functional forms for profit and transformation functions," Journal of Economic Theory, Elsevier, vol. 6(3), pages 284-316, June. [Downloadable!] (restricted)
  16. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation, Yale University. [Downloadable!]
  17. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-45, December. [Downloadable!] (restricted)
  18. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May. [Downloadable!] (restricted)
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  19. Jeffrey I. Bernstein, 1983. "Investment, Labour Skills, and Variable Factor Utilization in the Theory of the Firm," Canadian Journal of Economics, Canadian Economics Association, vol. 16(3), pages 463-79, August. [Downloadable!] (restricted)
  20. Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, vol. 47(6), pages 1441-55, November. [Downloadable!] (restricted)
  21. Abel, Andrew B, 1981. "A Dynamic Model of Investment and Capacity Utilization," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 379-403, August. [Downloadable!] (restricted)
  22. McLaren, Keith R & Cooper, Russel J, 1980. "Intertemporal Duality: Application to the Theory of the Firm," Econometrica, Econometric Society, vol. 48(7), pages 1755-62, November. [Downloadable!] (restricted)
  23. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. M. Ishaq Nadiri & Ingmar R. Prucha, 1997. "Estimation of the Depreciation Rate of Physical and R&D Capital in the U.S. Total Manufacturing Sector," NBER Working Papers 4591, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1993. "Production, Financial Structure and Productivity Growth in U.S. Manufacturing," NBER Working Papers 4309, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Altshuler, Rosanne & Cummins, Jason, 1997. "Tax Policy and the Dynamic Demand for Domestic and Foreign Capital by Multinational Corporations," Working Papers 97-31, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  4. Benoît Carmichael & Pierre Mohnen & Stéphane Vigeant, 1990. "La demande de facteurs de production dans le secteur manufacturier québecois: une approche dynamique avec attentes rationnelles," Annales d'Economie et de Statistique, ADRES, issue 19, pages 03, Juillet-S. [Downloadable!]
    Other versions:
  5. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November. [Downloadable!]
  6. Hossain, Ferdaus & Jain, Ruchi, 2001. "Financial Structure, Production and Productivity Growth in U.S. Food Manufacturing Industry," 2001 Annual meeting, August 5-8, Chicago, IL 20756, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  7. Prucha, Ingmar R. & Nadiri, M. Ishaq, 1991. "Endogenous Capital Utilization and Productivity Measurement in Dynamic Factor Demand Models: Theory and an Application to the U.S. Electrical Machinery Industry," Working Papers 91-04, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  8. Nadiri, M.I. & Prucha, I.R., 1993. "Estimation of the Depreciation Rate of Physical and R&D Capital in the U.S. Total Manufacturing Sector," Working Papers 93-47, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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