Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidence for Chile

Eduardo M.R.A. Engel (), Alvaro Bustos () and Alexander Galetovic ()
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Alexander Galetovic: Universidad de Chili, Center of Applied Economics (CEA)

Yale School of Management Working Papers from Yale School of Management

Abstract: 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.

Keywords: Adjustment Costs; Corporate Veil; Demand for Capital; Depreciation Allowances; User Cost of Capital (search for similar items in EconPapers)
JEL-codes: H32 D21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lam and nep-pbe
Date: 2004-07-28
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Related works:
Working Paper: Could Higher Taxes Increase the Long-Run Demand for Capital? Theory and Evidence for Chile" (2003)
Working Paper: Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidences for Chile (2002)
Journal Article: Could higher taxes increase the long-run demand for capital? Theory and evidence for Chile (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:ysm:somwrk:ysm408

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