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http://ssrn.com/abstract=972708
 
 

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Panel Cointegration Estimates of the Effect of Interest Rates, Capital Goods Prices, and Taxes on the Capital Stock


Huntley Schaller


Carleton University - Department of Economics

Marcel C. Voia


Carleton University

December 22, 2006


Abstract:     
The effect of interest rates, capital goods prices, and taxes on the capital stock is an issue of central importance in economics, with implications for monetary policy, business cycle models, tax policy, economic development, growth, and other areas. For more than 30 years it has been difficult to obtain precise estimates of these effects, and there is little consensus in the profession on their magnitude, despite their importance for both theory and policy. In this paper, we therefore turn to panel data, specifically a newly constructed data set with more than 50 years of firm-level data on the capital stock and with detailed industry-specific data on the interest rate, the price of investment goods, and tax parameters. Using this rich panel data set, we implement recently developed tests for cointegration in panel data. These tests allow us to determine whether the long-run implications of Jorgensonian neoclassical, q, irreversibility, and (s,S) theories are supported by the data. Using the same data, we then use recently developed panel cointegration estimators to assess the quantitative effect of the interest rate, capital goods prices, and taxes on the capital stock.

Number of Pages in PDF File: 38

Keywords: investment, capital stock, user cost elasticity, interest rate, taxes, capital goods prices, panel cointegration

JEL Classification: H25,C23,E22,E62

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Date posted: March 19, 2007  

Suggested Citation

Schaller, Huntley and Voia, Marcel C., Panel Cointegration Estimates of the Effect of Interest Rates, Capital Goods Prices, and Taxes on the Capital Stock (December 22, 2006). Available at SSRN: http://ssrn.com/abstract=972708 or http://dx.doi.org/10.2139/ssrn.972708

Contact Information

Huntley Schaller
Carleton University - Department of Economics ( email )
1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-3751 (Phone)
613-520-3906 (Fax)
Marcel C. Voia (Contact Author)
Carleton University ( email )
1125 colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
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