Tax Elasticity Estimates for Capital Stocks

Jean-Francois Wen and Fatih Yilmaz

FinanzArchiv: Public Finance Analysis, 2020, vol. 76, issue 3, 215-239

Abstract: We use panel cointegration techniques to estimate the long-run, tax-adjusted, user cost elasticity of capital (UCE) in a small open economy. The estimates exploit three sources of variation in Canadian tax policy: across provinces, industries, and years. The UCE is estimated to be between -1.1 and -1.3 for machinery and equipment. We also provide semielasticities of capital with respect to marginal effective tax rates (METR). Our construction of the user costs makes use of a detailed data set on federal and provincial tax policy variables.

Keywords: capital taxation; user cost of capital elasticity; marginal effective tax rate (search for similar items in EconPapers)
JEL-codes: H25 H32 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:mhr:finarc:urn:doi:10.1628/fa-2020-0007

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DOI: 10.1628/fa-2020-0007

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