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Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment

Author

Listed:
  • Hashmat U. Khan

    (Department of Economics, Carleton University)

  • Jean-François Rouillard

    (Département d'économique, Université de Sherbrooke)

Abstract

We demonstrate that the model in Fisher (2007) produces two counterfactual results when the capital tax rate is calibrated to 35%---a rate consistent with estimates of the effective tax rate in the literature. First, household investment lags business investment. Second, household investment is less volatile than business investment with a relative volatility of .62. We show that increasing the degree of household capital complementarity cannot resolve these problems because the model produces counterfactual factor shares in market production relative to the empirical estimates in Fisher (2007). Accounting for U.S. investment dynamics, therefore, remains a significant challenge for macroeconomists.

Suggested Citation

  • Hashmat U. Khan & Jean-François Rouillard, 2017. "Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment," Cahiers de recherche 17-01, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:17-01
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1701.pdf
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    References listed on IDEAS

    as
    1. Finn E. Kydland & Peter Rupert & Roman Sustek, 2012. "Housing Dynamics over the Business Cycle," NBER Working Papers 18432, National Bureau of Economic Research, Inc.
    2. Michael Cooper & John McClelland & James Pearce & Richard Prisinzano & Joseph Sullivan & Danny Yagan & Owen Zidar & Eric Zwick, 2016. "Business in the United States: Who Owns It, and How Much Tax Do They Pay?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 91-128.
    3. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    4. Kydland, Finn & Rupert, Peter & Sustek, Roman, 2012. "Housing Dynamics over the Business Cycle," University of California at Santa Barbara, Economics Working Paper Series qt7bn5k73m, Department of Economics, UC Santa Barbara.
    5. Jonas D. M. Fisher, 2007. "Why Does Household Investment Lead Business Investment over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 141-168.
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    Cited by:

    1. Joshua Brault & Hashmat Khan, 2020. "The Shifts In Lead‐Lag Properties Of The U.S. Business Cycle," Economic Inquiry, Western Economic Association International, vol. 58(1), pages 319-334, January.

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    More about this item

    Keywords

    household investment; business investment; capital taxation.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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