The Effects of Taxation on Capital Accumulation (National Bureau of Economic Research Monographs)

501 Pages·1987·7.95 MB·English

by  Martin Feldstein

The Effects ofTaxation on
Capital Accumulation
A National Bureau
ofEconomic Research
Project Report
The Effects of
Taxation on Capital
Accumulation
Martin Feldstein
Edited by
The University ofChicago Press
Chicago andLondon
MartinFeldsteinis the George F. BakerProfessorofEconomics
atHarvard Universityand Presidentofthe National Bureauof
EconomicResearch.
The University ofChicagoPress, Chicago60637
The UniversityofChicagoPress, Ltd., London
© 1987by the National BureauofEconomicResearch
All rights reserved. Published 1987
Printedinthe United StatesofAmerica
96 95 94 93 92 91 90 89 88 87 5 4 3 2
LibraryofCongress Cataloging-in-PublicationData
The Effectsoftaxationoncapitalaccumulation.
(A National BureauofEconomicResearchproject
report)
Bibliography: p.
Includesindex.
1. Taxation. 2. Savingand investment. I. Feldstein,
Martin S. II. Series.
HJ2305.E29 1987 332'.0415 86-25025
ISBN0-226-24088-6
National Bureau ofEconomic Research
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FranklinA. Lindsay, Chairman Geoffrey Carliner, Executive Director
Richard N. Rosett, Vice Chairman Charles A. Walworth, Treasurer
Martin Feldstein, PresidentandChief Sam Parker, DirectorofFinance and
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Directors at Large
Moses Abramovitz George Hatsopoulos PeterG. Peterson
Andrew Brimmer WalterW. Heller Robert V. Roosa
Carl F. Christ Saul B. Klaman Richard N. Rosett
GeorgeT. Conklin, Jr. FranklinA. Lindsay BertSeidman
Jean A. Crockett Roy E. Moor Eli Shapiro
Morton Ehrlich Geoffrey H. Moore Stephen Stamas
Martin Feldstein Michael H. Moskow Donald S. Wasserman
Edward L. Ginzton James J. O'Leary Marina v.N. Whitman
David L. Grove Robert T. Parry
Directors by University Appointment
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Contents
Acknowledgments xi
Introduction
Martin Feldstein
1. IRAs and Saving 7
Steven F. Venti and David A. Wise
Comment: Angus Deaton
2. Consumer Spending and the After-Tax Real
Interest Rate 53
N. Gregory Mankiw
Comment: Laurence J. Kotlikoff
3. Capital Gains Rates, Realizations, and
Revenues 69
Lawrence B. Lindsey
Comment: John H. Makin
4. The Effects ofTax Rules on Nonresidential
Fixed Investment: Some Preliminary
Evidence from the 1980s 101
Martin Feldstein and Joosung Jun
Comment: Roger H. Gordon
5. Anticipated Tax Changes and the
Timing ofInvestment 163
Alan J. Auerbach and James R. Hines, Jr.
Comment: Andrew B. Abel
vii
viii Contents
6. New Results on the Effects ofTax Policy
on the International Location ofInvestment 201
Michael J. Boskin and William G. Gale
Comment: David G. Hartman
7. Notes on the Tax Treatment ofStructures 223
Roger H. Gordon, James R. Hines Jr.,
and Lawrence H. Summers
Comment: Emil M. Sunley
8. Tax Changes and Capital Allocation
in the 1980s 259
Patrie H. Hendershott
Comment: Harvey S. Rosen
9. Investment Incentives and the Discounting
ofDepreciation Allowances 295
Lawrence H. Summers
10. Tax Loss Carryforwards and
Corporate Tax Incentives 305
Alan J. Auerbach and James M. Poterba
Comment: David F. Bradford
11. Tax Asymmetries and Corporate Tax Reform 343
Saman Majd and Stewart C. Myers
Comment: Joseph E. Stiglitz
12. The Cash Flow Corporate Income Tax 377
Mervyn A. King
Comment: Daniel Feenberg
13. The Impact ofFundamental Tax Reform
on the Allocation ofResources 401
Don Fullerton and Yolanda Kodrzycki
Henderson
Comment: J. Gregory Ballentine
14. The Value-Added Tax: A General
Equilibrium Look at Its Efficiency and
Incidence 445
Charles L. Ballard, John Karl Scholz, and
John B. Shoven
Comment: Harvey Galper
List ofContributors 481
Author Index 485
Subject Index 487
Acknowledgments
Thisvolumebringstogetherfourteen papersthatwerepreparedas part
ofan ongoing study ofthe effects oftaxation on capital accumulation
thatis beingcarriedoutat the NationalBureauofEconomicResearch.
Takenasawhole, thesestudiesshowthatcurrenttaxrulesandchanges
in tax rules have powerful effects on business investment in plant and
equipment, on personal saving, and on the realization ofcapital gains.
The NBER research on taxation and capital accumulation has been
discussedatregularmeetingsoftheBureau'staxprogramandatspecial
meetings focused on this project. The papers included in this volume
were presentedata conferenceon February 13-16, 1986. The remarks
ofthe discussants at that conference are also included in this volume.
The collaborative research presented here was made possible by
continuing activities ofthe NBER's tax program. Several members of
thatprogramcontributedtotheefforteventhoughtheydidnotprepare
papers for this volume. The volume thus benefited from the general
guidance oftax program director David F. Bradford. National Bureau
Directors George T. Conklin, Jr., Ann F. Friedlaender, and J. Clay
LaForce have reviewed the entire manuscript. National Bureau staff
members Mark Fitz-Patrick, Deborah Mankiw, Kathi Smith, Annie
Spillane, Gail Swett, and Kirsten Foss Daviscontributed to theoverall
effort.
ix