Business capital accumulation and the user cost: is there a heterogeneity bias?

Using data from 23 market economy sectors across 10 OECD countries over the period 1984-2007 we show that the homogeneity assumption underlying empirical models for aggregate capital accumulation may lead to misspecification. Thus, we adopt a fully disaggregated approach – by asset types and sectors – to estimate the responsiveness of investment to the tax-adjusted user cost of capital. In this framework, we are able to link unobserved common factors to the nature of the shocks affecting the different asset types. We find that, when all the sources of heterogeneity are accounted for, capital accumulation is significantly affected by the user cost, although the magnitude of the long run substitution elasticity varies across assets.

FATICA Serena; 

2018-01-15

ELSEVIER SCIENCE BV

JRC101634

0164-0704,   

https://www.sciencedirect.com/science/article/pii/S0164070417300836,    https://publications.jrc.ec.europa.eu/repository/handle/JRC101634,   

10.1016/j.jmacro.2017.12.004,