Abstract

http://ssrn.com/abstract=228886
 
 

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The Importance of Measurement Error in the Cost of Capital


Austan Goolsbee


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


National Tax Journal, Vol. 53, Issue 2, June 2000

Abstract:     
Conventional estimates of the impact of taxes on investment may be seriously biased by measurement error in the cost of capital. The existence and size of such error, however, has not been documented. Using panel data on different types of capital equipment, this paper provides direct evidence of measurement error in the tax component of the cost of capital, accounting for about 20 percent of the tax term's variance. Correcting for the error with IV estimation shows that taxes significantly affect both prices and investment and that conventional results may be off by as much as a factor of four.

JEL Classification: C2, E6

Accepted Paper Series





Not Available For Download

Date posted: June 6, 2000  

Suggested Citation

Goolsbee, Austan, The Importance of Measurement Error in the Cost of Capital. National Tax Journal, Vol. 53, Issue 2, June 2000. Available at SSRN: http://ssrn.com/abstract=228886

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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