Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment

Hashmat Khan () and Jean-François Rouillard

No 17-04, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: We demonstrate that the model in Fisher (2007) produces two counterfactual results when the capital tax rate is calibrated to 35%—a rate consistent with estimates of the effective tax rate in the literature. First, household investment lags business investment. Second, household investment is less volatile than business investment with a relative volatility of .62. We show that increasing the degree of household capital complementarity cannot resolve these problems because the model produces counterfactual factor shares in market production relative to the empirical estimates in Fisher (2007). Accounting for U.S. investment dynamics, therefore, remains a significant challenge for macroeconomists.

Keywords: household investment; business investment; capital taxation (search for similar items in EconPapers)
JEL-codes: E22 E32 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2017-01-16
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

Published: Carleton Economic Papers

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