Tax Policy and Business Fixed Investment in the United States

46 Pages Posted: 5 Jul 2004 Last revised: 16 Apr 2008

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Kevin A. Hassett

American Enterprise Institute (AEI)

Date Written: February 1991

Abstract

This paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest. The estimates suggest that taxes have played an independent role in affecting postwar U.S. investment behavior, particularly for investment in machinery and equipment. In addition, the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous. Illustrative calculations using this technique, based on the paper's empirical estimates, suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period.

Suggested Citation

Auerbach, Alan Jeffrey and Hassett, Kevin A., Tax Policy and Business Fixed Investment in the United States (February 1991). NBER Working Paper No. w3619. Available at SSRN: https://ssrn.com/abstract=227447

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Kevin A. Hassett

American Enterprise Institute (AEI) ( email )

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United States
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202.862.7177 (Fax)

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