Taxation and the Size and Composition of the Capital Stock: an Asset Price Approach

61 Pages Posted: 4 Jul 2004 Last revised: 6 Sep 2010

See all articles by Lawrence H. Summers

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: September 1985

Abstract

This paper develops an asset price approach to the analysis of capital taxation. The costs of adjusting capital stocks cause tax changes to have important impacts on the valuation of existing capital. The recapitalizations associated with tax reforms represent an important aspect of their incidence. These effects are studied within the context of an empirically calibrated general equilibrium model. The model extends previous work by explicitly treating the process of adjustment following tax reforms, treating in detail the relationship between tax rules and interest rates and examining the differential incidence effects of corporate tax reductions and investment incentives.

Suggested Citation

Summers, Lawrence H., Taxation and the Size and Composition of the Capital Stock: an Asset Price Approach (September 1985). NBER Working Paper No. w1709. Available at SSRN: https://ssrn.com/abstract=227407

Lawrence H. Summers (Contact Author)

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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