Investment, Taxation and Econometric Policy Evaluation: Some Evidence on the Lucas Critique

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: This Paper Presents Empirical Evidence on Both These Effects by Studying Version of the Hall-Jorgenson Model Estimated From U.S. Data (1956-1972) by Gordon Investment Tax Credits over This Period Suggest That the Lucas Effects May Be Observable in This Example. for This Purpose, We Use Recursive Stability Analysis, an Explanatory Methodology Introduced by Brown, Durbin and Evans (1975) and Extended by Dufou (1979, 1982). This Method Is Based on a Pocess of Ecusive Estimation of the Model With, Among Other Things, an Analysis of the Associated Prediction Errors. It Makes Very Weak Assumptions on the Form of the Instability to Be Detected and Provides Indications on the Direction of Prediction Errors. the Main Finding Is a Discontinuity Associated with the First Imposition of the Tax Credit (1964-66); Further, This Shift Led to the Underprediction of Investment. the Results in This Way Support the Lucas Hypothesis.

Keywords: Investments; Taxation (search for similar items in EconPapers)
Date: Written 1987

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Working Paper: Investment, Taxation and Econometric Policy Evaluation: Some Evidence on the Lucas Critique (1981)
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Persistent link: http://EconPapers.repec.org/RePEc:mtl:montde:8741

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