Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202289 
Authors: 
Year of Publication: 
2017
Series/Report no.: 
JRC Working Papers in Economics and Finance No. 2017/11
Publisher: 
Publications Office of the European Union, Luxembourg
Abstract: 
Empirical models of capital accumulation estimated on aggregate data series are based on the assumption that capital asset types respond in the same way to cost variables. Likewise, aggregate models do not consider potential heterogeneity in investment behaviour originating on the demand side for capital, e.g. at the sector level. We show that the underlying assumption of homogeneity may indeed lead to misspecification of standard aggregate investment models. Using data from 23 sectors in 10 OECD countries over the period 1984-2007, we adopt a fully disaggregated approach – by asset types and sectors – to estimate the responsiveness of investment to the tax-adjusted user cost of capital. While accounting for the different sources of heterogeneity, we find that fixed capital accumulation is significantly affected by changes in the user cost. However, the estimated substitution elasticities are smaller than one - the benchmark value under a Cobb-Douglas production function. We do not find robust evidence that the long run substitution elasticities are statistically different across asset types.
Subjects: 
capital accumulation
user cost of capital
corporate taxation
panel data
JEL: 
E22
H25
C33
Persistent Identifier of the first edition: 
ISBN: 
978-92-79-76929-0
Document Type: 
Working Paper

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