Fixed Capital Formation in the British Economy, 1956-1965

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problems of efficacy and timing of instrumental changes in tax practice. Although the model was overtly based on the work of Irving Fisher, the particular formulation is sufficiently distinctive to warrant a separate name; and we shall refer to it as the Jorgenson model. Few econometric analyses dealing with aspects of the post-war British economy are available. In 1968, a study sponsored by the Brookings Institution ([3], ch. 1) was compelled to acknowledge the absence of any econometric investigation of the British system of investment incentives. In the following sections, this omission is remedied and some empirical results are tabulated for two models applied to data derived for one decade of the post-war British economy.3 These models explicitly include variables representing three types of capital allowances and a variable representing a composite tax-rate. The latter takes account of Income Tax, Profits Tax and a number of other special levies. The Jorgenson model provided a convenient starting point in the process of building these models, although its translation to a different economy involved the rejection of Jorgenson's specification for the system of tax allowances chargeable against gross income as defined for tax purposes. An alternative specification was substituted, and there are marked differences between the expression for the user-cost of capital services derived on the basis of the Jorgenson model and the corresponding expressions derived for our alternative models. All of these models share deficiencies in the final expressions for desired capital services arising from the use of the Cobb-Douglas characterization of