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Cover of: Tax Elasticity Estimates for Capital Stocks
Jean-François Wen, Fatih Yılmaz

Tax Elasticity Estimates for Capital Stocks

Section: Articles
Volume 76 (2020) / Issue 3, pp. 215-239 (25)
Published 18.05.2020
DOI 10.1628/fa-2020-0007
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  • 10.1628/fa-2020-0007
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Summary
We use panel cointegration techniques to estimate the long-run, tax-adjusted, 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 semielasticities 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.