Tax Policy and Business Fixed Investment in the United States

Alan Auerbach and Kevin Hassett

No 3619, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest. The estimates suggest that taxes have played an independent role in affecting postwar U.S. investment behavior, particularly for investment in machinery and equipment. In addition, the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous. Illustrative calculations using this technique, based on the paper's empirical estimates, suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period.

Date: 1991-02
Note: PE
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Published as Journal of Public Economics, Vol.44, pp. 141-170, (1992).

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