Tax Elasticity Estimates for Capital Stocks

Share
Print
Title:

Tax Elasticity Estimates for Capital Stocks

Number:

19/01

Author(s):

Fatih Yılmaz, Jean-François Wen

Language:

English

Date:

January 2019

Abstract:

We use panel cointegration techniques to estimate the long-run user cost elasticity of capital (UCE) in a small open economy. The estimates exploit three sources of variation in Canadian tax policy: across provinces, industries, and years. The UCE is estimated to be between -1.1 and -1.3 for machinery and equipment. We also provide semi-elasticities of capital with respect to marginal effective tax rates (METR). Our construction of the user costs makes use of a detailed data set on federal and provincial tax policy variables.

Keywords:

Capital taxation, User cost of capital elasticy, Marginal effective tax rate

JEL Codes:

H25; H32

Tax Elasticity Estimates for Capital Stocks