Taxation and the Size and Composition of the Capital Stock: An Asset Price Approach

Lawrence Summers

No 1709, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops an asset price approach to the analysis of capital taxation. The costs of adjusting capital stocks cause tax changes to have important impacts on the valuation of existing capital. The recapitalizations associated with tax reforms represent an important aspect of their incidence. These effects are studied within the context of an empirically calibrated general equilibrium model. The model extends previous work by explicitly treating the process of adjustment following tax reforms, treating in detail the relationship between tax rules and interest rates and examining the differential incidence effects of corporate tax reductions and investment incentives.

Date: 1985-09
Note: PE
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Published as From Modern Developments in Public Finance: Essays in Honor of Arnold Harberger, edited by Michael J. Boskin, pp. 61-94. Oxford: Basil Blackwell Ltd., 1987.

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