"Capital Income Taxes and Economic Performance"

Tax reform that reduces tax rates on capital income, no matter how successful it is in reducing the user cost of capital, will have at best minimal effects on capital formation and output and therefore on the growth of the U.S. economy.

"Minsky and the Mainstream: Has Recent Research Rediscovered Financial Keynesianism?"

Hyman Minsky's research emphasized the central role of finance in modern economics at a time when finance was not important in most mainstream macroeconomic research. But in the 1980s, mainstream research began to explore the role of finance in firm and consumer behavior. This paper examines the extent to which this recent mainstream research captures Minsky's insights and whether it extends his work. I argue that recent work on micro foundations-the link between economic behavior and finance--complements Minsky's contributions and corresponding empirical research provides strong support for his argument that financial conditions affect expenditures. But large differences remain between Minsky and the mainstream paradigm, especially in the role played by the financial system in macroeconomic fluctuations. Furthermore, there is much in Minsky's Big Government--Big Bank policy framework that does not appear in recent mainstream work.

Tax reform and investment: how big an impact?

Capital investments ; Corporations - Taxation ; Tax auditing

Tax reform and investment: blessing or curse?

Tax reform ; Capital investments ; Corporations - Taxation

Minsky and the Mainstream: Has Recent Research Rediscovered Financial Keynesianism

Hyman Minsky's research emphasized the central role of finance in modern economies at a time when finance was not important in most mainstream macroeconomic research. But in the 1980s, mainstream research began to explore the role of finance in firm and consumer behavior. This paper examines the extent to which this recent mainstream research captures Minsky's insights and whether it extends his work. I argue that recent work on micro foundations—the link between economic behavior and finance—complements Minsky's contributions and corresponding empirical research provides strong support for his argument that financial conditions affect expenditure. But large differences remain between Minsky and the mainstream paradigm, especially in the role played by the financial system in macroeconomic fluctuations. Furthermore, there is much in Minsky's Big Government–Big Bank policy framework that does not appear in recent mainstream work.

"Capital Gains Taxes and Economic Growth, Effects of a Capital Gains Tax Cut on the Investment Behavior of Firms"

Research Associate Steven M. Fazzari and Benjamin Herzon assess the effect of a capital gains tax cut on firms' decisions to undertake new investment projects and the possible effect of such projects on economic growth and employment. Their analysis takes into account such factors as projects' degree of uncertainty, investors' degree of risk aversion, whether capital gains losses are deductible against capital gains income, whether the market value of an investment project is affected by the imposition of capital gains taxes, and whether the project is financed by internal or external means. Fazzari and Herzon find that there is little theoretical or empirical basis for the view that lowering the capital gains tax rate would have a substantial effect on economic growth or level of economic activity. They estimate that the current proposal to lower the highest capital gains tax rate from 28.0 percent to 19.8 percent would have a long-term effect on the level of output no greater than the impact of roughly two months of normal economic growth, and it would take years to realize even this small benefit. Indexing the rate to inflation would have a somewhat larger, but still small, effect. Fazzari and Herzon conclude that capital gains taxes have a negligible influence on investment decisions and dispute the claim that a lower capital gains tax rate would have large beneficial effects on output, growth, or entrepreneurial activity in the U.S. economy.

Market Power and Inflation

Market power exercised by firms has become central to macroeconomics. Recent theoretical work highlights the importance of the relation between market power and inflation. We examine this relation for individual firms in eleven U.S. industries. Our econometric framework exploits restrictions from dynamic theory and information from financial markets to generate quantitative evidence on the responsiveness of market power to inflation. We find that inflation usually has a positive effect on market power. This relation is heterogeneous across the eleven industries, and statistically significant positive relations are concentrated in industries with little market power.