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.
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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)
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