IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The User Costs of Capital in Austria

Listed author(s):
  • Serguei Kaniovski


The concept of the user costs of capital, or its shadow price, plays a prominent role in the neoclassical theory of investment and constitutes a convenient vehicle for evaluating effects of corporate taxation on private business investment. This paper presents a derivation of the user cost of capital for Austria for the period of 1976 to 2000 and discusses methodological and statistical issues involved. Special care is taken to ensure the correct representation of the major fiscal instruments of Austria's system of corporate taxation in place at that time. These instruments comprise the business tax, the corporation tax, the depreciation allowance and the investment tax allowance. The spectrum of capital goods considered here encompasses machinery, vehicles, buildings and intangible capital goods. In addition, a comprehensive sensitivity analysis of the user cost of capital with respect to the aforementioned fiscal instruments is performed. Its results, coupled with empirical evidence on the sensitivity of private investment to user costs, provide the basis for fiscal policy evaluation in the field of corporate taxation. The basic measure used in the sensitivity analysis is semi-elasticity. The main findings can be summarised as follows: • Austria's corporate tax system is not investment-neutral, and its impact depends on the financial structure. Legislation particularly favours funding through borrowing. • A 1 percentage point increase in the business tax rate typically impacts as a 0.34 percent decrease in investment made by the private sector. • The impact of the same increase in corporation tax is markedly weaker due to a fiscal provision that allows deducting interest payments on debt, amounting, on average, to a 0.10 percent decrease in investment. In the benchmark case of investment funded exclusively by retained profit, the effect makes up –0.54 percent. • An increase in the rate of the investment tax allowance of the same magnitude induces, on average, 0.36 percent more investment. • A 1 percentage point increase in the rate of depreciation allowance provides the strongest stimulus for private business investment, which is quantified at 2.52 percent. All the above effects generally increase with the life span of the capital good. This certainly applies to depreciation allowance, taxes and to a lesser extent to investment allowance.

If 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.

File URL:
File Function: Abstract
Download Restriction: Payment required

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by WIFO in its journal WIFO-Monatsberichte.

Volume (Year): 75 (2002)
Issue (Month): 5 (May)
Pages: 339-346

in new window

Handle: RePEc:wfo:monber:y:2002:i:5:p:339-346
Contact details of provider: Postal:
Arsenal Object 20, A-1030 Wien

Phone: (+43 1) 798 26 01-0
Fax: (+43 1) 798 93 86
Web page:

More information through EDIRC

Order Information: Postal: Austrian Institute of Economic Research Publikationsverkauf und Abonnentenbetreuung Arsenal, Objekt 20 A-1030 Vienna/Austria

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wfo:monber:y:2002:i:5:p:339-346. 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: (Ilse Schulz)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.