Corporate Taxation, Capital Formation, and the Substitution Elasticity between Labor and Capital

33 Pages Posted: 24 Jun 2002

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2002

Abstract

This study provides some perspective on analyzing the effects of corporate taxation on capital formation. Our framework translates tax policy legislation into real outcomes, and identifies three parameters that play a central role in determining the impact on policy. The remainder of the paper focuses on the substitution elasticity between labor and capital. Several of the prominent studies representing the major contours of this research area over the past 40 years are examined. Our review of five general equilibrium studies indicates that alternative values of this elasticity matter a great deal for the welfare changes following from proposed tax reforms. The paper concludes with two lessons for tax policy analysis and some suggestions for future research.

JEL Classification: H25, H32

Suggested Citation

Chirinko, Robert S., Corporate Taxation, Capital Formation, and the Substitution Elasticity between Labor and Capital (April 2002). CESifo Working Paper Series No. 707. Available at SSRN: https://ssrn.com/abstract=312142

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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