Could Higher Taxes Increase the Long-Run Demand for Capital? Theory and Evidence for Chile"
On 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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|Date of creation:||Jul 2003|
|Date of revision:|
|Publication status:||Published in Journal of Development, Vol. 73, No. 2, 2004|
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Documentos de Trabajo
41, Centro de Economía Aplicada, Universidad de Chile.
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