Investment Tax Incentives, Prices, and the Supply of Capital Goods
AbstractUsing data on the prices of capital goods, this paper shows that much of the benefit of" investment tax incentives does not go to investing firms but rather to capital suppliers through" higher prices. The reduction in the cost of capital from a 10 percent investment tax credit" increases equipment prices 3.5-7.0 percent. This lasts several years and is largest for assets with" large order backlogs, low import competition, or with a large fraction of buyers able to use" investment subsidies. Capital goods workers' wages rise, too. Instrumental variables estimates" of the short-run supply elasticity are around 1 and can explain the traditionally small estimates of" investment demand elasticities. In absolute value, the demand elasticity implied here exceeds 1."
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6192.
Date of creation: Sep 1997
Date of revision:
Publication status: published as Quarterly Journal of Economics, Vol. 113, no. 1 (February 1998): 121-148.
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
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Other versions of this item:
- Austan Goolsbee, 1998. "Investment Tax Incentives, Prices, And The Supply Of Capital Goods," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 121-148, February.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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