Working Paper: NBER ID: w1709
Authors: Lawrence H. Summers
Abstract: This paper develops an asset price approach to the analysis of capital taxation. The costs of adjusting capital stocks cause tax changes to have important impacts on the valuation of existing capital. The recapitalizations associated with tax reforms represent an important aspect of their incidence. These effects are studied within the context of an empirically calibrated general equilibrium model. The model extends previous work by explicitly treating the process of adjustment following tax reforms, treating in detail the relationship between tax rules and interest rates and examining the differential incidence effects of corporate tax reductions and investment incentives.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax changes (H29) | Existing capital valuation (G31) |
| Tax changes (H29) | Asset prices (G19) |
| Corporate tax reductions (H29) | Market value of corporate capital (G32) |
| Corporate tax reductions (H29) | Value of residential capital (R31) |
| Investment incentives (G31) | Holders of existing capital (G32) |
| Tax policy changes (H29) | Wealth transfers among capital owners (D33) |
| Corporate tax rate reductions (H29) | Old capital (E22) |
| Corporate tax rate reductions (H29) | New capital (E22) |