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

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Author Info
Alan J. Auerbach
Kevin Hassett
Jan Sodersten

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5189.

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Date of creation: Oct 1996
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Handle: RePEc:nbr:nberwo:5189

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Find related papers by JEL classification:
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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  1. Auerbach, Alan J. & Hassett, Kevin, 1992. "Tax policy and business fixed investment in the United States," Journal of Public Economics, Elsevier, vol. 47(2), pages 141-170, March. [Downloadable!] (restricted)
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  2. 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(1982-1), pages 57-106. [Downloadable!]
  3. Auerbach, Alan J, 1989. "Tax Reform and Adjustment Costs: The Impact on Investment and Market Value," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 939-62, November. [Downloadable!] (restricted)
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  4. Sodersten, Jan, 1989. " The Investment Funds System Reconsidered," Scandinavian Journal of Economics, Blackwell Publishing, vol. 91(4), pages 671-87.
  5. Bergstrom, Villy & Sodersten, Jan, 1984. " Do Tax Allowances Stimulate Investment?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 86(2), pages 244-68.
  6. Dufwenberg, Martin & Koskenkyla, Heikki & Sodersten, Jan, 1994. " Manufacturing Investment and Taxation in the Nordic Countries," Scandinavian Journal of Economics, Blackwell Publishing, vol. 96(3), pages 443-61.
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