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Estimating the Cost of Capital and the Profit Share

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  • Has van Vlokhoven

Abstract

Capital costs are not directly observed since firms own part of their capital stock. I show under which assumptions variation in firms’ input choices reveals the user cost of capital. Using Compustat data for the United States, I find that the costs of tangible capital as a share of output have not been increasing, while economic profits have been increasing over the past 50 years from around 4% to around 9% of sales. About three-quarters of the fall in the labour share is associated with a rise in profits and the remainder is associated with a rise in intangible intensity.

Suggested Citation

  • Has van Vlokhoven, 2024. "Estimating the Cost of Capital and the Profit Share," The Economic Journal, Royal Economic Society, vol. 134(661), pages 2175-2206.
    • Handle: RePEc:oup:econjl:v:134:y:2024:i:661:p:2175-2206.
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    File URL: http://hdl.handle.net/10.1093/ej/ueae001
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Hao & Wang, Feng & Fan, Wenna & Jiang, Hongfei & Ling, Rui & Liu, Juan, 2025. "Estimation of capital stock and the elasticity of capital-labor substitution in provincial industries in China," International Review of Economics & Finance, Elsevier, vol. 102(C).

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