NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Lawrence H. Summers

NBER Working Paper No. 1709 (Also Reprint No. r1061)
Issued in October 1988
NBER Program(s):   PE

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.

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Published: 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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