Corporate Taxes and Incentives and the Structure of Production: a Selected Survey

57 Pages Posted: 21 Jul 2010

See all articles by Jeffrey I. Bernstein

Jeffrey I. Bernstein

Carleton University - Department of Economics; National Bureau of Economic Research (NBER)

M. Ishaq Nadiri

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: April 1988

Abstract

In this paper we develop a general intertemporal model of production, emphasizing the role of present and expected future corporate income taxes, credits and allowances along with costly adjustment and variable utilization of the quasi-fixed factors. Three specific issues are considered: 1) the direct and indirect effects of taxes operating through factor prices on the long-run input substitution, thus altering the structure of the production process; 2) the effects of tax policy changes on the rate and direction of technological change; and 3) the effects of tax policy on the inter- temporal pattern of substitutions and complementarities among the inputs that arise due to presence of quasi-fixity of some inputs. The rates of utilization of the quasi-fixed factors are determined in the short-run in conjunction with the demands for the variable factors of production. Hence, utilization rates depend on product and factor prices and therefore on tax policy. We specialize the general model in order to highlight each of the three themes and their interaction with tax policy. We also discuss the various ways in which empirical implementation of the theoretical models and a brief summary of the empirical results in the literature is also provided. Lastly, we discuss some policy implications which emerge from the analysis and empirical results.

Suggested Citation

Bernstein, Jeffrey I. and Nadiri, M. Ishaq, Corporate Taxes and Incentives and the Structure of Production: a Selected Survey (April 1988). NBER Working Paper No. w2579. Available at SSRN: https://ssrn.com/abstract=1646203

Jeffrey I. Bernstein

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
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National Bureau of Economic Research (NBER)

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M. Ishaq Nadiri

New York University (NYU) - Department of Economics ( email )

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New York, NY 10011
United States
212-998-8968 (Phone)
212-995-4013 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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