Tax incentives, material inputs, and the supply curve for capital equipment
The slope of the supply curve for capital equipment has important implications for the macroeconomics of investment and the effects of tax reform on capital accumulation. Goolsbee (1998) has used changes in investment tax incentives to identify whether this supply curve is significantly upward-sloping and has concluded that it is. This paper shows that investment tax incentives are a poor instrument for identifying this supply curve because they are spuriously correlated with supply shocks for equipment producers. Once input costs for equipment producers are controlled for, there is no evidence of a relationship between tax incentives and equipment prices. In fact, the evidence favors the interpretation that the supply curve is flat.
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References listed on IDEAS
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- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996.
"Long-Run Implications of Investment-Specific Technological Change,"
RCER Working Papers
420, University of Rochester - Center for Economic Research (RCER).
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- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
- Kevin A. Hassett & R. Glenn Hubbard, 1999.
"Are Investment Incentives Blunted by Changes in Prices of Capital Goods?,"
NBER Working Papers
6676, National Bureau of Economic Research, Inc.
- Hassett, Kevin A & Hubbard, R Glenn, 1998. "Are Investment Incentives Blunted by Changes in Prices of Capital Goods?," International Finance, Wiley Blackwell, vol. 1(1), pages 103-25, October.
- repec:oup:qjecon:v:108:y:1993:i:1:p:1-32 is not listed on IDEAS
- Peter K. Clark, 1993. "Tax Incentives and Equipment Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 317-347.
- Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
- Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
- repec:oup:qjecon:v:113:y:1998:i:1:p:121-148 is not listed on IDEAS
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