Brown, M., and N. Revankar, “A Generalized Theory of the Firm: An Integration of the Sales and Profit Maximization Hypotheses,” Kyklos, Vol. 24 (No. 3, 1971), pp. 427–43.
Christensen, L. R., D. Cummings, and D.W. Jorgenson (1980), “Economic Growth, 1947–73: An International Comparison,” in New Developments in Productivity Measurement and Analysis, ed. by John W. Kendrick and Beatrice N. Vaccara (University of Chicago Press, 1980), pp. 595–698.
- Search Google Scholar
- Export Citation
)| false ( Christensen, L. R., D. Cummings, and D.W. Jorgenson 1980), “ Economic Growth, 1947–73: An International Comparison,” in New Developments in Productivity Measurement and Analysis, ed.by ( John W. Kendrickand Beatrice N. Vaccara University of Chicago Press, 1980), pp. 595– 698.
Christensen, L. R., D. Cummings, and D.W. Jorgenson (1981), “Relative Productivity Levels, 1947–1973: An International Comparison,” European Economic Review, International Seminar in Macroeconomics, Vol. 16 (May 1981), pp. 61–94.
Christensen, Laurits R., and Dale W. Jorgenson, “The Measurement of U.S. Real Capital Input, 1929–1967,” Review of Income and Wealth, Series 15 (December 1969), pp. 293–320.
Denison, Edward F., Why Growth Rates Differ: Postwar Experience in Nine Western Countries, The Brookings Institution (Washington, 1967).
European Communities, Statistical Office (1976), Social Statistics: Labor Costs in Industry, 1972–75, Vol. 6/1975 (Luxembourg, 1976).
Feldstein, Martin S., “Tax Incidence in a Growing Economy with Variable Factor Supply,” Quarterly Journal of Economics, Vol. 88 (November 1974), pp. 551–73.
Feldstein, Martin S., and C. Horioka, “Domestic Saving and International Capital Flows,” Economic Journal, Vol. 90 (June 1980), pp. 314–29.
Hall, R. E., and D. W. Jorgenson, “Application of the Theory of Optimum Capital Accumulation,” in Tax Incentives and Capital Spending, ed. by Gary Fromm, The Brookings Institution (Washington, 1971), pp. 9–60.
Harberger, Arnold C., “Vignettes on the World Capital Market,” American Economic Review, Papers and Proceedings, Vol. 70 (May 1980), pp. 331–37.
Japan, Ministry of Labour, Statistics and Information Department, Year Book of Labour Statistics, 1973 and 1978 (Tokyo, 1974 and 1979).
King, Mervyn A., Public Policy and the Corporation, Cambridge Studies in Applied Econometrics, No. 3 (London and New York, 1977).
Kopits, George (1975), International Comparison of Tax Depreciation Practices, Organization for Economic Cooperation and Development (Paris, 1975).
Kopits, George (1978), “Wage Subsidies and Employment: An Analysis of the French Experience,” Staff Papers, Vol. 25 (September 1978), pp. 494–527.
Kopits, George (1980), “Effects of Tax Changes on Direct Investment Abroad,” in United States Taxation and Developing Countries, ed. by Robert Hellawell (Columbia University Press, 1980), pp. 223–62.
Kopits, George (1981), “Fiscal Incentives for Investment in Industrial Countries,” Bulletin for International Fiscal Documentation, Vol. 35 (July 1981), pp. 291–94.
Kopits, George (forthcoming), “Inflation, Income Taxation, and Economic Behavior,” in Comparative Tax Studies: Essays in Honor of Richard Goode, ed. by S. Cnossen. It is scheduled to be published by North Holland.
Kravis, Irvin B., Alan Heston, and Robert Summers, in collaboration with others, International Comparisons of Real Product and Purchasing Power, United Nations International Comparison Project: Phase II (published for the World Bank by Johns Hopkins University Press, 1978).
- Search Google Scholar
- Export Citation
)| false Kravis, Irvin B., Alan Heston, and Robert Summers, in collaboration with others, International Comparisons of Real Product and Purchasing Power, United Nations International Comparison Project: Phase II ( published for the World Bank by Johns Hopkins University Press, 1978).
Organization for Economic Cooperation and Development (1973 and 1978), Economic Outlook, Vols. 13 and 23 (Paris, July 1973 and July 1978).
Organization for Economic Cooperation and Development (1973 and 1978) (1981), National Accounts of OECD Countries, 1962–1979, Vol. 2 (Paris, 1981).
Samuelson, Paul A., “Tax Deductibility of Economic Depreciation to Insure Invariant Valuations,” Journal of Political Economy, Vol. 72 (December 1964), pp. 604–606.
Tideman, Nicolaus, and Donald P. Tucker, “The Tax Treatment of Business Profits Under Inflationary Conditions,” in Inflation and the Income Tax, ed. by Harry J. Aaron, The Brookings Institution (Washington, 1976), pp. 33–74.
U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, Vols. 57 and 59 (Washington, July 1977 and July 1979).
U.S. Department of Health, Education and Welfare, Social Security Administration,Social Security Programs Throughout the World, 1973 and 1977 (Washington, 1973 and 1977).
U.S. Department of Health, Education and Welfare, Social Security Administration (1981), “Estimated Hourly Compensation of Production Workers in Manufacturing, Ten Countries, 1970–80” (unpublished data, Washington, March 1981).
Young, A. H., and J. C. Musgrave, “Estimation of Capital Stock in the United States,” in The Measurement of Capital, ed. by Dan Usher (University of Chicago Press, 1980), pp. 23–81.
Mr. Kopits, Senior Economist in the European Department, holds degrees from Georgetown University. Formerly he was associated with The Brookings Institution and the U.S. Treasury Department, and taught at the Johns Hopkins School of Advanced International Studies. He is indebted to Harry Grubert, Thomas Horst, Gary Hufbauer, and Duncan MacRae for helpful comments.
The basic formulation of the rental price of domestic capital input in the absence of inflation is given in Hall and Jorgenson (1971). For extensions to an inflationary situation, see Tideman and Tucker (1976), and to capital located abroad, Kopits (1980).
According to an alternative view that assumes equilibrium in the financial (debt and equity) market, the cost of funds is determined by the rate of interest modified explicitly by the income tax treatment of individual (or institutional) shareholders, as well as by the corporate income tax. See King (1977, Ch. 8).
In countries that impose a general sales tax, or a value-added tax, at a rate i, the market price of output p should be replaced by p(1−i). Also, insofar as the value-added tax levied on capital goods at rate j is credited on a current basis against the tax paid at the next stage of processing or distribution, the market price of asset q in pK should be adjusted to q(1 −j). This, in fact, is the general practice followed by member countries of the European Economic Community.
For example, for capital, equation (7a) would be replaced by
See Kravis, Heston, and Summers (1978). The author is grateful to Alan Heston for making available detailed printouts of the multilateral price and quantity comparisons.
The following assets are specifically excluded: educational and hospital buildings; buildings for cultural, religious, sports, and social purposes; roads, streets, and highways; and land improvement and plantation and orchard developments.
The price deflator for France includes mining and utilities; for Italy and the Netherlands it also includes construction; and for Japan the deflator for aggregate investment was used because of the lack of any sectoral breakdown of investment.
It is assumed that the enterprises’ tax liability is sufficiently large to make full use of available depreciation allowances and tax credits.
Except for Italy and Japan where, because of the relatively large proportion of short-term bank financing of corporate debt, the prime rate charged on bank loans was used.
European Communities (1976) and (1981) and Japan (1974) and (1979). The U.S. hourly compensation rates were obtained from national income accounts reported by the U.S. Department of Commerce (1977; 1979) supplemented with information from the U.S. Department of Labor (1980). The author has benefited from discussions with Arthur Neef of the U.S. Bureau of Labor Statistics on labor cost data comparability.
The 1970 index was extrapolated to 1973 and 1978 on the basis of each country’s annual growth rate in educational attainment; see Christensen, Cummings, and Jorgenson (1980) and (1981). Lacking an index value for Belgium, it is assumed that educational attainment in that country was the same as in the Netherlands in both years.
Compared with forecasts of the rate of change in the gross national product deflator by the OECD (1973 and 1978) and the Fund in its staff surveys of the world economic outlook, the three-year average rate of change in the deflator was within ½ of 1 percentage point of those alternative forecasts for five out of eight countries in both 1973 and 1978. Only for Italy and the United Kingdom in 1978 was the three-year average outside that range—above the OECD and Fund forecasts. (Unfortunately, no such forecasts are available for the rate of change in the fixed investment deflator.)
In an earlier comparative study of the United States and European countries, differences in educational level were found to be smaller. However, educational differences were considerably more significant than differences in experience or age-sex composition of the labor force. (See Denison (1967), Chs. 7, 8, and 9.)
As regards fixed assets, buildings and other structures are virtually immobile, while machinery and equipment are traded actively. Short-term portfolio investment is highly mobile in contrast to direct investment, although many multinational enterprises have ready access to the international bond market and to internal funds pooled among a large number of affiliates located in different countries. For further arguments and evidence on the degree of worldwide integration of capital markets, see the debate between Harberger (1980) and Feldstein and Horioka (1980).
None of the measures requires adjustment for labor quality differentials, since any adjustment would have an offsetting impact through the price and the quantity of labor.
The average annual exchange rate of each country’s currency per U.S. dollar (e) was obtained from International Monetary Fund (1981).
In the absence of inflation and capital gains on equity, the rate of return under any one of the tax principles applied in columns (2) through (5) would be the same. If, however, the expected rate of change in the price of capital goods was equivalent to the anticipated rate of change in the value of shareholders’ equity, then the rate of return calculated under either definition of neutrality in columns (2) and (3) would be identical.
For further discussion, see Kopits (forthcoming).
A more direct estimate of the tax subsidy rate on fixed assets is obtained by multiplying the income tax rate by the difference between the present value of depreciation deductions allowed for tax purposes (plus credits and grants) and the present value of depreciation under a neutral system; see Kopits (1981).
Instantaneous depreciation leads to full tax neutrality if the after-tax required rate of return stays unchanged regardless of the tax rate. This presupposes that the corporation income tax is fully shifted and interest payments are not deductible.
It may be argued that measurement of the tax rate on labor services should include the personal income tax if it has the same incidence as payroll taxes. This argument seems to be valid, for example, in the Netherlands, where wage negotiations are normally conducted in reference to the workers’ real disposable income (after payroll and income taxes).
The adverse impact on competitiveness stems from the absence of border tax adjustment (on exports and imports) based on the destination principle as regards payroll tax payments.