Taxation, user cost of capital and factor demand
In this paper we analyze the impact on the demand of capital and labour of changes in their relative costs, using micro data. We especially highlight the role of the user cost of capital, for which we propose an original measure based on the cost of debt and the cost of equity. We hence take advantage of changes in the taxation of capital to build instrument variables and to estimate a complete system of factor demands. First we find that the elasticity of substitution between capital and labour is relatively weak in the non manufacturing sector, about 0,4, whereas this parameter range from 0.6 to 0,8 in the manufacturing sector. Secondly, we show that the price elasticity of the demand for goods is quite high, and is almost equal to 2 in both industries. Thirdly and probably the most interesting result, we find a significant and direct relationship between the user cost of capital and the stock of capital, which does not appear in most former studies on French data. In a standard model of factor demand, our results mean that the wealth effect dominates the substitution effect. As a result, lowering the user cost of capital would lead, at partial equilibrium, to increase not only investment but also the employment level and output.
|Date of creation:||2001|
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- Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
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- Cahuc, Pierre & Gianella, Christian & Goux, Dominique & Zylberberg, Andre, 2002. "Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms," CEPR Discussion Papers 3510, C.E.P.R. Discussion Papers.
- Cahuc, Pierre & Gianella, Christian & Goux, Dominique & Zylberberg, Andre, 2002. "Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms," IZA Discussion Papers 582, Institute for the Study of Labor (IZA).
- repec:adr:anecst:y:1996:i:41-42:p:09 is not listed on IDEAS
- Michel Bua & Philippe Girard & Philippe Redondo & François Legendre, 1991. "Financement, fiscalité et croissance des entreprises industrielles," Économie et Prévision, Programme National Persée, vol. 98(2), pages 45-68.
- Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 123-166 National Bureau of Economic Research, Inc.
- Martin Feldstein, 1996. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Working Papers 5469, National Bureau of Economic Research, Inc.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
- Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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