Tax Policy, Asset Prices, and Growth: a General Equilibrium Analysis

65 Pages Posted: 15 Mar 2007

See all articles by Lawrence H. Goulder

Lawrence H. Goulder

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Resources for the Future

Lawrence H. Summers

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

Date Written: 1987

Abstract

This paper presents a multisector general equilibrium model that is capable of providing integrated assessments of the economy's short- and long- run responses to tax policy changes. The model contains an explicit treatment of firm's investment decisions according to which producers exhibit forward- looking behavior and take account of adjustment costs inherent in the installation of new capital. This permits an examination of both short-run effects of tax policy on industry profits and asset prices as well as 1ong-term effects on capital accumulation. The model contains considerable detail on U.S. industry, corporate financial policies, and the U.S. tax system. Simulation results reveal that the effects of tax policy differ significantly depending on whether the policy is oriented toward new or old capital measures like the investment tax credit stimulate investment without conferring significant windfall gains on corporate shareholders. Corporate tax rate reductions with the same revenue cost, on the other hand, yield large windfalls to shareholders while providing only a modest stimulus to investment in plant and equipment.

Suggested Citation

Goulder, Lawrence H. and Summers, Lawrence H., Tax Policy, Asset Prices, and Growth: a General Equilibrium Analysis (1987). NBER Working Paper No. w2128. Available at SSRN: https://ssrn.com/abstract=971613

Lawrence H. Goulder (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-3706 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

Lawrence H. Summers

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
64
rank
337,799
Abstract Views
830
PlumX Metrics