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Business capital accumulation and the user cost: Is there a heterogeneity bias?

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  • Fatica, Serena

Abstract

Using data from 23 sectors in 10 OECD countries over the period 1984–2007 we show that the homogeneity assumption underlying empirical models of capital accumulation may lead to mis-specification. Thus, we adopt a fully disaggregated approach – by asset types and sectors – to estimate the responsiveness of investment to the tax-adjusted user cost of capital. Once all the sources of heterogeneity are accounted for, we find that capital accumulation is significantly affected by changes in the user cost, although the size of the impact is smaller than the unit benchmark. We do not find robust evidence that the long run substitution elasticities are statistically different across asset types.

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  • Fatica, Serena, 2018. "Business capital accumulation and the user cost: Is there a heterogeneity bias?," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 15-34.
    • Handle: RePEc:eee:jmacro:v:56:y:2018:i:c:p:15-34
    DOI: 10.1016/j.jmacro.2017.12.004
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    2. Ramón E. López & Pablo Gutiérrez Cubillos & Eugenio Figueroa, 2020. "The Tax Paradox and Weak Tax Neutrality," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 1150-1169, January.
    3. Claire Giordano & Marco Marinucci & Andrea Silvestrini, 2022. "Assessing the usefulness of survey‐based data in forecasting firms' capital formation: Evidence from Italy," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(3), pages 491-513, April.
    4. Claire Giordano & Marco Marinucci & Andrea Silvestrini, 2021. "Forecasting corporate capital accumulation in Italy: the role of survey-based information," Questioni di Economia e Finanza (Occasional Papers) 596, Bank of Italy, Economic Research and International Relations Area.
    5. Thanh, Su Dinh & Canh, Nguyen Phuc, 2020. "Taxation and capital formation: Non-linear effects and asymmetry between developing and developed countries," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).

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    More about this item

    Keywords

    Capital accumulation; User cost of capital; Corporate taxation; Panel data;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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