Abstract
We derive the quantitative implications of growth theory for U.S. corporate equity plus net debt over the period 1960{2001. There were large secular movements in corporate equity values relative to GDP, with dramatic declines in the 1970s and dramatic increases starting in the 1980s and continuing throughout the 1990s. During the same period, there was little change in the capital-output ratio or earnings share of output. We ask specically whether the theory accounts for these observations. We nd that it does, with the critical factor being changes in the U.S. tax and regulatory system. We nd that the theory also accounts for the even larger movements in U.K. equity values relative to GDP in this period.
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