This paper accepts for the sake of argument the hypothesis that much of the time series correlation between tax and profit rates is spurious, and shows how nonetheless time series for profit rates, tax rates, and consumption can be organized, compared and interpreted using Fisher's (1930) theory of consumption in order to understand the incidence of capital taxes. Capital taxation is associated with a wedge between anticipated aggregate consumption growth and capital rental rates, suggesting that in one way or another capital owner behavior adjusts in the direction needed for some passing' of the capital tax. Conversely, most of the medium and low frequency deviations between anticipated aggregate consumption growth and capital rental rates are associated with capital taxation, as implied by aggregate time-separable Fisherian consumption theories in which time preference, non-tax capital market distortions, aggregation biases, and other determinants of aggregate consumption growth vary little over time.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9916.
Length: Date of creation: Aug 2003 Date of revision: Handle: RePEc:nbr:nberwo:9916
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Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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