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

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  • Jeffrey I. Bernstein
  • M. Ishaq Nadiri

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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Bibliographic Info

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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Publication status: published as Bernstein, J.I. and M.I. Nadiri, "Corporate Taxes and Incentives and the Structure of Production: A Selected Survey," from The Impact of Taxation on Business Activity, ed. by Jack M. Mintz and Douglas D. Purvis, Kingston, Ontario: John Deutsch Institute for the Study of Economic Policy, 1987.
Handle: RePEc:nbr:nberwo:2579

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References

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  1. Epstein, Larry G, 1981. "Duality Theory and Functional Forms for Dynamic Factor Demands," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 81-95, January.
  2. Winston, Gordon C & McCoy, Thomas O, 1974. "Investment and the Optimal Idleness of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(3), pages 419-28, July.
  3. Epstein, Larry G, 1981. "Generalized Duality and Integrability," Econometrica, Econometric Society, vol. 49(3), pages 655-78, May.
  4. 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.
  5. 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.
  6. Foss, Murray F, 1981. "Long-Run Changes in the Workweek of Fixed Capital," American Economic Review, American Economic Association, vol. 71(2), pages 58-63, May.
  7. Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers 127, Federal Reserve Bank of Minneapolis.
  8. Baily, Martin Neil, 1981. "The Productivity Growth Slowdown and Capital Accumulation," American Economic Review, American Economic Association, vol. 71(2), pages 326-31, May.
  9. 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.
  10. 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.
  11. Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, vol. 47(6), pages 1441-55, November.
  12. 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.
  13. 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.
  14. Steigum, Erling, Jr, 1983. "A Financial Theory of Investment Behavior," Econometrica, Econometric Society, vol. 51(3), pages 637-45, May.
  15. 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.
  16. Sumner, M. T., 1974. "Taxation and investment incentives in a vintage investment model : Comment," Journal of Public Economics, Elsevier, vol. 3(2), pages 185-194, May.
  17. Blackorby, Charles & Schworm, William, 1983. " Aggregating Heterogeneous Capital Goods in Adjustment-Cost Technologies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(2), pages 207-22.
  18. 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.
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Citations

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Cited by:
  1. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November.
  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.
  3. M. Ishaq Nadiri & Ingmar R. Prucha, 1993. "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.
  4. Rosanne Altshuler & Jason Cummins, 1998. "Tax Policy and the Dynamic Demand for Domestic and Foreign Capital by Multinational Corporations," Departmental Working Papers 199808, Rutgers University, Department of Economics.
  5. 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).

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