User Cost Elasticity of Capital Revisited

26 Pages Posted: 4 Dec 2013

See all articles by Nadja Dwenger

Nadja Dwenger

Max Planck Institute for Tax Law and Public Finance

Date Written: January 2014

Abstract

Researchers still lack consensus about the size of the user cost elasticity of capital. The divergence in prior estimates may have arisen because one of the two strands of research has neglected cointegration among capital, its user costs, and sales. Using German firm‐level panel data, I show that estimating a distributed lag model, prevalent in prior literature, leads to low estimates of the user cost elasticity. Properly accounting for cointegration in an error correction model yields a much larger point estimate of the price elasticity of capital (close to −1). Non‐random sample attrition is found to be relatively unimportant.

Suggested Citation

Dwenger, Nadja, User Cost Elasticity of Capital Revisited (January 2014). Economica, Vol. 81, Issue 321, pp. 161-186, 2014, Available at SSRN: https://ssrn.com/abstract=2362590 or http://dx.doi.org/10.1111/ecca.12054

Nadja Dwenger (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

10117
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/public_economics/public_economics_people/dwenger_nadja.cfm

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
264
PlumX Metrics