The Asset Price Approach to the Analysis of Capital Income Taxation

  • Lawrence H. Summers


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.


Asset Price Capital Stock Investment Equation Adjustment Cost Nominal Interest Rate 
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© George R. Feiwel 1985

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  • Lawrence H. Summers

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