NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Reform and Adjustment Costs: The Impact on Investment and Market Value

Alan J. Auerbach

NBER Working Paper No. 2103 (Also Reprint No. r1348)
Issued in December 1986
NBER Program(s):   PE

This paper derives analytical measures of the combined effects of tax changes and adjustment costs on investment and market value. Unlike earlier measures, the effective tax rate derived is valid in the presence of adjustment costs and anticipated tax changes. The derived measure of the impact of tax changes on market value permits one to estimate the effects of various tax changes on market value and its components, discounted pure profits and normal returns to capital, and to decompose changes in the value of capital into changes in the marginal value of new capital and changes in the relative value of new and existing capital. These measures are used to evaluate tax changes similar to those introduced by the recent U.S. tax reform.

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Document Object Identifier (DOI): 10.3386/w2103

Published: International Economic Review, Vol. 30, No. 4, pp. 939-962, (November 1989)

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