CHAPTER 7 - Government Fiscal Policy and Private Capital Formation—Some Aggregate Time-Series Estimates

Abstract

This chapter discusses the empirical estimates of the effects of government fiscal policy on real, private-sector investment in plant and equipment. The empirical results discussed are supportive of several conclusions. Investment in nonresidential structures and investment in producers' durable equipment appear to behave sufficiently differently that aggregating the two is inappropriate for the types of analysis presented in the chapter. These differences are apparent both in the univariate time-series properties of the two series and also in the form of the transfer functions relating them to the various measures of government fiscal policy. The transfer functions for INVS and INVE differ with respect to the form of lag distribution associated with the government spending variable and the marginal tax rate on income from labor and with respect to the magnitude of the effects of these variables and of the marginal tax rate on income from capital.