Lumpy Investment and Corporate Tax Policy
Jianjun Miao () and
Pengfei Wang ()
No wp2009-016, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics
This paper studies the impact of corporate tax policy on the economy in the presence of both convex and nonconvex capital adjustment costs in a dynamic general equilibrium model. We show that corporate tax policy generates both intensive and extensive margin effects via the channel of marginal Q. Its impact is determined largely by the strength of the extensive margin effect, which in turn depends on the cross-sectional distribution of firms. Depending on the initial distribution of firms, the economy displays asymmetric responses to tax changes. We also show that an anticipated decrease in the future corporate income tax rate raises investment and adjustment rate immediately, while an anticipated increase in the future investment tax credit reduces investment and adjustment rate initially. Our general equilibrium analysis demonstrates that a partial equilibrium analysis of tax policy can be quite misleading both quantitatively and qualitatively.
Keywords: generalized (S; s) rule; lumpy investment; general equilibrium; marginal Q; tax policy; adjustment costs (search for similar items in EconPapers)
JEL-codes: E22 E62 H32 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Journal Article: Lumpy Investment and Corporate Tax Policy (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bos:wpaper:wp2009-016
Access Statistics for this paper
More papers in Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Program Coordinator ().