Tax incentives, material inputs, and the supply curve for capital equipment

Karl Whelan ()

No 1999-21, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The slope of the supply curve for capital equipment has important implications for the macroeconomics of investment and the effects of tax reform on capital accumulation. Goolsbee (1998) has used changes in investment tax incentives to identify whether this supply curve is significantly upward-sloping and has concluded that it is. This paper shows that investment tax incentives are a poor instrument for identifying this supply curve because they are spuriously correlated with supply shocks for equipment producers. Once input costs for equipment producers are controlled for, there is no evidence of a relationship between tax incentives and equipment prices. In fact, the evidence favors the interpretation that the supply curve is flat.

Keywords: Tax reform; Capital investments (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Tax incentives, material inputs, and the supply curve for capital equipment (1999)
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