Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment
We demonstrate that the model in Fisher (2007) produces two counterfactual results when the capital tax rate is calibrated to 35%|a rate consistent with estimates of the effective tax rate in the literature. First, household investment lags business investment. Second, household investment is less volatile than business investment with a relative volatility of .62. We show that increasing the degree of household capital complementarity cannot resolve these problems because the model produces counterfactual factor shares in market production relative to the empirical estimates in Fisher (2007). Accounting for U.S. investment dynamics, therefore, remains a significant challenge for macroeconomists.
|Keywords||household investment, business investment, capital taxation|
|JEL||Capital; Investment (including Inventories); Capacity (jel E22), Business Fluctuations; Cycles (jel E32)|
|Publisher||Department of Economics|
|Series||Carleton Economic Papers (CEP)|
Khan, H.U, & Rouillard, Jean-Francois. (2016). Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment (No. CEP 17-04). Carleton Economic Papers (CEP). Department of Economics.