The Asset Price Approach to the Analysis of Capital Income Taxation
This chapter summarizes and attempts to place in a broader context my recent research directed at developing an asset price approach to the analysis of the effects of capital income taxation. The link between asset markets and real investment decisions has been an important theme of much recent research in macroeconomics dating at least from Tobin’s seminal q theory of investment. However, asset markets have been subordinate in most previous theoretical and empirical efforts to model the effects of capital income taxation on economic behaviour. Although changes in asset prices are the proximate determinants of who gains and loses following tax reforms, asset markets are suppressed in standard models used to study tax incidence.
KeywordsAsset Price Capital Stock Investment Equation Adjustment Cost Nominal Interest Rate
Unable to display preview. Download preview PDF.
- Abel, A. B. (1980), ‘Empirical Investment Equations: An Integrative Framework’, in K. Brunner and A. H. Metzler (eds), On the State of Macro Economics, Carnegie-Rochester Conference Series on Public Policy, 12, Amsterdam: North-Holland, 39–91.Google Scholar
- Bulow, J. I., and L. Summers (1982) ‘Risk and Taxes Reconsidered’ (mimeo).Google Scholar
- Eisner, R., and R. Chirinko (1980) ‘Tax Policy and Business Investment’, unpublished.Google Scholar
- Eisner, R., and R. H. Strotz (1963) ‘Determinants of Business Investment’, in Commission on Money and Credit, Impacts of Monetary Policy, Englewood Cliffs, N.J.: Prentice-Hall, pp. 59–337.Google Scholar
- Hall, R. E., and D. W. Jorgenson (1967) ‘Tax Policy and Investment Behavior’, American Economic Review, 57 (June): 391–414.Google Scholar
- Lucas, R. E. Jr (1976) ‘Econometric Policy Evaluation: A Critique’, in The Phillips Curve and Labor Markets, Carnegie-Rochester Conference Series on Public Policy, 1, Amsterdam: North-Holland, 19–46.Google Scholar
- Salinger, M., and L. Summers (1983) ‘Corporate Tax Reform and Securities Prices; A Simulation Approach’, forthcoming in National Bureau of Economic Research Conference Volume on Tax Simulation Analysis.Google Scholar
- Summers, L. (1981) ‘Taxation and Corporate Investment: A q Theory Approach’, Brookings Papers on Economic Activity (January): 67–127.Google Scholar
- Summers, L. (1982) ‘Inflation and the Valuation of Corporate Equities’, National Bureau of Economic Research, Working Paper.Google Scholar
- Summers, L. (1983a) ‘Taxation and Asset Prices in a General Equilibrium Model’, unpublished.Google Scholar
- Summers, L. (1983b) ‘The Non-adjustment of Nominal Interest Rates: A Study of the Fisher Effect’, in J. Tobin (ed.), Macroeconomics: Prices and Quantities, Brookings, pp. 201–47.Google Scholar