Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidence for Chile
AbstractOn theoretical grounds alone, there is no a priori reason why higher taxes should reduce the desired capital stock, since a tax increase reduces marginal returns but also increases depreciation and interest payment allowances. Using a panel of Chilean corporations, this paper estimates a long-run demand for capital valid for a general adjustment-cost structure. Changes in the corporate tax rate are found to have no effect on the long run demand for capital. Furthermore, when making investment decisions, firms ignore the marginal rates paid by their stockholders, suggesting the presence of a corporate veil.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm408.
Date of creation: 28 Jul 2004
Date of revision:
Adjustment Costs; Corporate Veil; Demand for Capital; Depreciation Allowances; User Cost of Capital;
Other versions of this item:
- Bustos, Alvaro & Engel, Eduardo M. R. A. & Galetovic, Alexander, 2004. "Could higher taxes increase the long-run demand for capital? Theory and evidence for Chile," Journal of Development Economics, Elsevier, vol. 73(2), pages 675-697, April.
- Alvaro Bustos & Eduardo Engel & Alexander Galetovic, 2002. "Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidences for Chile," Documentos de Trabajo 145, Centro de Economía Aplicada, Universidad de Chile.
- Alvaro Bustos & Eduardo Engel & Alexander Galetovic, 2003. "Could Higher Taxes Increase the Long-Run Demand for Capital? Theory and Evidence for Chile"," Working Papers 858, Economic Growth Center, Yale University.
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-18 (All new papers)
- NEP-LAM-2004-07-18 (Central & South America)
- NEP-PBE-2004-07-18 (Public Economics)
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.:
- Caballero, Ricardo J, 1994. "Small Sample Bias and Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 52-58, February.
- King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
- Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
- Chang-Tai Hsieh & Jonathan A. Parker, 2006.
"Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom,"
NBER Working Papers
12104, National Bureau of Economic Research, Inc.
- Chang-Tai Hsieh & Jonathan A. Parker, 2007. "Taxes and Growth in a Financially Underdevelopped Country: Evidence from the Chilean Investment Boom," Journal of LACEA Economia, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Eduardo M.R.A. Engel & Alexander Galetovic & Claudio E. Raddatz, 1998.
"Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic,"
NBER Working Papers
6828, National Bureau of Economic Research, Inc.
- Engel, Eduardo M. R. A. & Galetovic, Alexander & Raddatz, Claudio E., 1999. "Taxes and income distribution in Chile: some unpleasant redistributive arithmetic," Journal of Development Economics, Elsevier, vol. 59(1), pages 155-192, June.
- Eduardo Engel & Alexander Galetovic & Claudio Raddatz, 1998. "Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic," Documentos de Trabajo 41, Centro de Economía Aplicada, Universidad de Chile.
- repec:fth:coluec:465 is not listed on IDEAS
- Bertola, G. & Caballero, R.J., 1990.
"Kinked Adjustment Costs And Aggregate Dynamics,"
1990_20, Columbia University, Department of Economics.
- Jorgenson, D.W., 1992. "Tax Reform and the Cost of Capital : An International Comparison," Harvard Institute of Economic Research Working Papers 1621, Harvard - Institute of Economic Research.
- Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
- Cai, Jing & Harrison, Ann, 2011.
"The value-added tax reform puzzle,"
Policy Research Working Paper Series
5788, The World Bank.
- Carlos Garcia & Jorge Restrepo, 2007. "How Effective is Government Spending in a Small Open Economy with Distortionary Taxes," ILADES-Georgetown University Working Papers inv188, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Rodrigo Cerda & Felipe Larrain, 2010. "Corporate taxes and the demand for labor and capital in developing countries," Small Business Economics, Springer, vol. 34(2), pages 187-201, February.
- Rodrigo A. Cerda & Diego Saravia, 2009. "Corporate Tax, Firm Destruction and Capital Stock Accumulation: Evidence From Chilean Plants, 1979-2004," Working Papers Central Bank of Chile 521, Central Bank of Chile.
- Panousi, Vasia, 2009. "Capital Taxation with Entrepreneurial Risk," MPRA Paper 24237, University Library of Munich, Germany.
- Rodrigo Cerda & Felipe LarraÃn, 2005. "InversiÃ³n Privada e Impuestos Corporativos: Evidencia para Chile," Documentos de Trabajo 297, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Yongzheng Liu & Jorge Martinez-Vazquez, 2010. "The Growth-Inequality Tradeo in the Design of Tax Structure: Evidence from a Large Panel of Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1320, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.