The Neoclassical Theory of Firm Investment and Taxes: A Reassessment

Gabriel Chodorow-Reich

No 33922, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Drawing on decades of research in public and macroeconomics, this article offers a neoclassical synthesis of the effect of corporate taxation on firm investment and aggregate outcomes. The microeconometric literature has (often unwittingly) studied two distinct comparative statics of the firm’s first order condition for capital. The first holds output fixed and identifies the capital-labor substitution elasticity (Eisner and Nadiri, 1968). The other holds fixed variables external to the firm (Coen, 1969). A consensus range for the Coen short-run relationship implies plausible values for parameters of the firm’s revenue function, validating the neoclassical theory. The long-run, general equilibrium elasticity of capital instead involves a third comparative static, holding labor fixed. This elasticity depends on the parameters identified from the firm-level regressions, connecting the microeconometric evidence to macroeconomic questions. Using this framework, I quantitatively assess the effect of corporate taxation on aggregate capital, output, wages, and tax revenue, and compare to existing approaches including policy models.

JEL-codes: E23 G31 H25 (search for similar items in EconPapers)
Date: 2025-06
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
Note: CF EFG ME PE
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.nber.org/papers/w33922.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33922

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33922
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().