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Investment Tax Incentives, Prices, and the Supply of Capital Goods


Austan Goolsbee


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

September 1997

NBER Working Paper No. w6192

Abstract:     
Using data on the prices of capital goods, this paper shows that much of the benefit of" investment tax incentives does not go to investing firms but rather to capital suppliers through" higher prices. The reduction in the cost of capital from a 10 percent investment tax credit" increases equipment prices 3.5-7.0 percent. This lasts several years and is largest for assets with" large order backlogs, low import competition, or with a large fraction of buyers able to use" investment subsidies. Capital goods workers' wages rise, too. Instrumental variables estimates" of the short-run supply elasticity are around 1 and can explain the traditionally small estimates of" investment demand elasticities. In absolute value, the demand elasticity implied here exceeds 1."

Number of Pages in PDF File: 39

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Date posted: September 20, 2000  

Suggested Citation

Goolsbee, Austan, Investment Tax Incentives, Prices, and the Supply of Capital Goods (September 1997). NBER Working Paper No. w6192. Available at SSRN: http://ssrn.com/abstract=225949

Contact Information

Austan Goolsbee (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5869 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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