IDEAS home Printed from https://ideas.repec.org/a/eee/forpol/v11y2009i2p85-94.html
   My bibliography  Save this article

Effects of tax incentives on long-run capital formation and total factor productivity growth in the Canadian sawmilling industry

Author

Listed:
  • Ghebremichael, Asghedom
  • Potter-Witter, Karen

Abstract

The goal of this study was to analyze effects of tax incentives on long-run dynamics of total factor productivity (TFP) growth and capital formation in the Canadian sawmilling industry over a 40-year period (1961-2000). Simulated tax incentives involved increasing capital cost allowance and investment tax credit and reducing corporate income tax. The production technology was specified as a function of capital, labor, energy, sawlogs, and a time dependent technological progress variable. A translog multilateral index number model was applied to measure and analyze TFP. Two analytical phases were followed. In the first phase, without the tax incentives, we analyzed annual levels and growth rates of TFP1; and parametrically examined effects of output growth and time dependent technology on the growth of TFP1. Over the study period, the average annual growth rate of TFP1 was 2%; and the parametric results revealed that the marginal effects of each of output growth and technological progress on TFP1 growth were highly significant. The second phase involved recalculation of the rental price of capital to estimate effects of the simulated tax incentives on capital formation and growth of TFP (=Â TFP2). As expected, the average annual share of capital in total cost with the tax incentives rose to 12% from 9% without the tax incentives. The average annual capital intensity also rose to real $15,263.70 with the incentives from real $10,402.91 without the incentives. Most importantly, higher capital formation, motivated by the tax incentives, raised aggregate quantity of the inputs significantly, leading to a slightly lower TFP2 than TFP1, because output was unchanged. In short, the data validated the hypothesis that tax incentives do indeed spur capital formation and TFP growth.

Suggested Citation

  • Ghebremichael, Asghedom & Potter-Witter, Karen, 2009. "Effects of tax incentives on long-run capital formation and total factor productivity growth in the Canadian sawmilling industry," Forest Policy and Economics, Elsevier, vol. 11(2), pages 85-94, March.
  • Handle: RePEc:eee:forpol:v:11:y:2009:i:2:p:85-94
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1389-9341(08)00082-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zvi Griliches, 1989. "Patents: Recent Trends and Puzzles," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 291-330.
    2. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    3. Barro, Robert J, 1999. "Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-137, June.
    4. Jorgenson, Dale W. & Yun, Kun-Young, 1990. "Tax Reform and U.S. Economic Growth," Scholarly Articles 3403059, Harvard University Department of Economics.
    5. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    6. Kenneth I. Carlaw & Richard G. Lipsey, 2003. "Productivity, Technology and Economic Growth: What is the Relationship?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 457-495, July.
    7. Hailin Liao & Mark Holmes & Tom Weyman-Jones & David Llewellyn, 2007. "Productivity growth of East Asia economies' manufacturing: A decomposition analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 43(4), pages 649-674.
    8. William D. Nordhaus, 2002. "Productivity Growth and the New Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 211-265.
    9. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    10. Nishimizu, Mieko & Page, John M, Jr, 1982. "Total Factor Productivity Growth, Technological Progress and Technical Efficiency Change: Dimensions of Productivity Change in Yugoslavia, 1965-78," Economic Journal, Royal Economic Society, vol. 92(368), pages 920-936, December.
    11. Charles R. Hulten, 2001. "Total Factor Productivity: A Short Biography," NBER Chapters, in: New Developments in Productivity Analysis, pages 1-54, National Bureau of Economic Research, Inc.
    12. Mahadevan, Renuka & Kalirajan, Kali, 2000. "Singapore's Manufacturing Sector's TFP Growth: A Decomposition Analysis," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 828-839, December.
    13. Laurits R. Christensen & Dale W. Jorgenson, 1969. "The Measurement Of U.S. Real Capital Input, 1929–1967," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 15(4), pages 293-320, December.
    14. Quadrini, Vincenzo, 1999. "Growth, learning and redistributive policies," Journal of Public Economics, Elsevier, vol. 74(2), pages 263-297, November.
    15. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275.
    16. Barry Bosworth & George L. Perry, 1994. "Productivity and Real Wages: Is There a Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 317-343.
    17. Gareth Myles, 2000. "Taxation and economic growth," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 141-168, March.
    18. Peter Mawson & Kenneth I Carlaw & Nathan McLellan, 2003. "Productivity Measurement: Alternative Approaches and Estimates," Treasury Working Paper Series 03/12, New Zealand Treasury.
    19. Boskin, Michael J, 1988. "Tax Policy and Economic Growth: Lessons from the 1980s," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 71-97, Fall.
    20. Greenwood, Jeremy & Krusell, Per, 2007. "Growth accounting with investment-specific technological progress: A discussion of two approaches," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1300-1310, May.
    21. Jorgenson, Dale W & Yun, Kun-Young, 1990. "Tax Reform and U.S. Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 151-193, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xueqing Wang & Yuan Chen & Bingsheng Liu & Yinghua Shen & Hui Sun, 2013. "A total factor productivity measure for the construction industry and analysis of its spatial difference: a case study in China," Construction Management and Economics, Taylor & Francis Journals, vol. 31(10), pages 1059-1071, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Athanasoglou, Panayiotis P. & Georgiou, Evangelia A. & Staikouras, Christos C., 2009. "Assessing output and productivity growth in the banking industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1317-1340, November.
    2. Lachaal, Lassaad, 1998. "Production Structure Characteristics and Adaptations of Productivity Growth Measures : A Survey," Cahiers d'Economie et de Sociologie Rurales (CESR), Institut National de la Recherche Agronomique (INRA), vol. 48.
    3. Lassaad Lachaal, 1998. "Production Structure Characteristics and Adaptations of Productivity Growth Measures : A Survey," Post-Print hal-01200909, HAL.
    4. Lassaad Lachaal, 1998. "Production Structure Characteristics and Adaptations of Productivity Growth Measures : A Survey," Cahiers d'Economie et Sociologie Rurales, INRA Department of Economics, vol. 48, pages 61-78.
    5. Hulten, Charles R., 2010. "Growth Accounting," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 987-1031, Elsevier.
    6. Donghyun Oh & Almas Heshmati & Hans Lööf, 2012. "Technical change and total factor productivity growth for Swedish manufacturing and service industries," Applied Economics, Taylor & Francis Journals, vol. 44(18), pages 2373-2391, June.
    7. Burda, Michael C. & Severgnini, Battista, 2014. "Solow residuals without capital stocks," Journal of Development Economics, Elsevier, vol. 109(C), pages 154-171.
    8. Georganta, Zoe, 1997. "The effect of a free market price mechanism on total factor productivity: The case of the agricultural crop industry in Greece," International Journal of Production Economics, Elsevier, vol. 52(1-2), pages 55-71, October.
    9. Elias Kourliouros & George Korres & Emmanuel Marmaras & George Tsobanoglou, 2006. "Economic Geography and Regional Growth: An Empirical Evidence From Greece," ERSA conference papers ersa06p30, European Regional Science Association.
    10. Massimo Del Gatto & Adriana Di Liberto & Carmelo Petraglia, 2011. "Measuring Productivity," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 952-1008, December.
    11. Feng, Guohua & Serletis, Apostolos, 2010. "A primal Divisia technical change index based on the output distance function," Journal of Econometrics, Elsevier, vol. 159(2), pages 320-330, December.
    12. Santos, João & Domingos, Tiago & Sousa, Tânia & St. Aubyn, Miguel, 2018. "Useful Exergy Is Key in Obtaining Plausible Aggregate Production Functions and Recognizing the Role of Energy in Economic Growth: Portugal 1960–2009," Ecological Economics, Elsevier, vol. 148(C), pages 103-120.
    13. Feng, Guohua & Serletis, Apostolos, 2008. "Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions," Journal of Econometrics, Elsevier, vol. 142(1), pages 281-311, January.
    14. Santos, João & Domingos, Tiago & Sousa, Tânia & St. Aubyn, Miguel, 2016. "Does a small cost share reflect a negligible role for energy in economic production? Testing for aggregate production functions including capital, labor, and useful exergy through a cointegration-base," MPRA Paper 70850, University Library of Munich, Germany.
    15. Ceyhun Elgin & Selman Çakır, 2015. "Technological progress and scientific indicators: a panel data analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 24(3), pages 263-281, April.
    16. Hsing, Yu, 1996. "Estimating the laffer curve and policy implications," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 25(3), pages 395-401.
    17. Sofiane Ghali & Pierre Mohnen, 2010. "Economic Restructuring and Total Factor Productivity Growth: Tunisia Over the Period 1983-2001," CIRANO Working Papers 2010s-26, CIRANO.
    18. Chong-En Bai & Qiong Zhang, 2017. "Is the People's Republic of China's current slowdown a cyclical downturn or a long-term trend? A productivity-based analysis," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(1), pages 29-46, January.
    19. Susanto Basu & John Fernald, 2001. "Why Is Productivity Procyclical? Why Do We Care?," NBER Chapters, in: New Developments in Productivity Analysis, pages 225-302, National Bureau of Economic Research, Inc.
    20. Werner Hölzl & Andreas Reinstaller, 2005. "Sectoral and Aggregate Technology Shocks:Is There a Relationship?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(1), pages 45-72, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:forpol:v:11:y:2009:i:2:p:85-94. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/forpol .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/forpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.