Hostname: page-component-76fb5796d-45l2p Total loading time: 0 Render date: 2024-04-27T02:07:11.219Z Has data issue: false hasContentIssue false
  • English
  • Français

Tobin’s q, the Demand for Investment and the Corporate Profit Taxation Policy in Canada (1950-1983)

Published online by Cambridge University Press:  17 August 2016

Hassouna Moussa
Hassouna Moussa*
Affiliation:
Acadia University, Wolfville
Get access

Extract

INTRODUCTION

In his General Theory, Keynes argued that the ratio q of the market value of firms to the replacement costs of their assets is an important determinant of investment demand. As the market value of the firm depends on the yield of stocks and bonds, the ratio q depends itself negatively on the general level of interest. It also depends positively on the corporate income tax parameters such as the tax rate and the capital cost allowance schedule. That is, in this model, both monetary policy and corporation taxation policy affect the level of investment, if at all, through q. Whether monetary policy, or corporate income taxation policy can stabilize investment depends on at least two conditions. First they must alter the procyclical tendency of q due to the procyclicity of expected profits, and secondly, q must act on investment with a very short lag.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 53 , Issue 1 , March 1987 , pp. 27 - 50
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1987 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

(1)

The author wishes to thank the referees for their useful and incisive comments.

References

REFERENCES

Abel, A.B. [1979], Investment and the Value of Capital, Garland Publishing Inc., New York.Google Scholar
Chow, G.C. [1960], Tests of Equality between Sets of Coefficients in Two Linear Regressions, Econometrica, 28, 591–605.Google Scholar
Chow, G.C. and Fair, R.C. [1973], Maximum-Likelihood Estimation of Linear Equations Systems with Auto-Regressive Residuals, Annals of Economic and Social Measurement, 2, 17–28.Google Scholar
Craine, R. [1975], Investment Adjustment Costs and Uncertainty, International Economic Review, October, Volume 16, n° 3, 648–661.Google Scholar
Friedman, M. [1968], The Role of Monetary Policy, American Economic Review, March, Volume 68, n° 1, 1–17.Google Scholar
Hall, R.E. [1977], Investment, Interest Rates and the Effects of Stabilization Policies, Brookings Papers on Economic Activity, n° 1.Google Scholar
Hall, R.E. [1978], Stochastic Implications of the Life-Cycle/Permanent Income Hypothesis: Theory and Evidence, Journal of Political Economy, Volume 86, n° 6.Google Scholar
Harman, F.J. and Johnson, J.A. [1978], An Examination of Government Tax Incentives for Business Investment in Canada, Canadian Tax Journal, Volume 26, n° 6, 691–704.Google Scholar
Hasan, A. and Moussa, H. [1986], Investment Demand with Adjustment Costs under Rational Expectations: Some Canadian Evidence, Acadia University, Working Paper.Google Scholar
Hayashi, F. [1982], Tobin’s Marginal Q and Average Q: A Neoclassical Interpretation, Econometrica, Volume 50, 213–24.Google Scholar
Hendry, D.F. and Mizon, G.E. [1978], Serial Correlation as a Convenient Simplification Not a Nuisance : A Comment on a Study of the Demand for Money by the Bank of England, The Economic Journal, 88, September, 594–663.Google Scholar
Jorgenson, D.W. [1971], Econometric Studies of Investment Behavior: A Survey, Journal of Economic Literature, n° 4.Google Scholar
Keynes, J.M. [1936], The General Theory of Employment, Interest and Money, McMillan, London.Google Scholar
Lucas, R.E. Jr. [1976], Econometric Policy Evaluation: A Critique in The Phillips Curve and Labor Markets, Brunner, K. and Meltzer, A.H. editors, The Carnegie-Rochester Conferences on Public Policy, a Suppl. Series to the Journal of Monetary Economics, Volume 1, Amsterdam, North-Holland.Google Scholar
Mcfetridge, D.G. and May, J.D. [1976], The Effects of Capital Cost Allowance Measures on Capital Accumulation in the Canadian Manufacturing Sector, Public Finance Quarterly, 4, n° 3, 307–322.Google Scholar
Oulton, N. [1981], Aggregate Investment and Tobin’s Q: The Evidence From Britain, Oxford Economic Papers, Volume 33, July, 176–202.Google Scholar
Sargent, J. [1979], Macroeconomic Theory, Academic Press, New York.Google Scholar
Tobin, J. [1969], A General Equilibrium Approach to Monetary Theory, Journal of Money Credit and Banking, n° 1, 15–29.Google Scholar
Tobin, J. and Brainard, W.C. [1977], Asset Markets and the Cost of Capital, in Balassa, and Nelson, R. (eds.) Economic Progress, Private Values, and Public Policy: Essays in honour of William Fellner, North Holland, Amsterdam.Google Scholar