The Effects ofTaxation on Capital Accumulation A National Bureau of Economic Research Project Report The Effects of Taxation on Capital Accumulation

Edited by Martin Feldstein

The University of Chicago Press

Chicago and London Martin Feldstein is the George F. Baker Professor of Economics at Harvard University and President of the National Bureau of Economic Research.

The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London

© 1987 by the National Bureau of Economic Research All rights reserved. Published 1987 Printed in the United States of America

96 95 94 93 92 91 90 89 88 87 5 4 3 2

Library of Congress Cataloging-in-Publication Data The Effects of taxation on capital accumulation. (A National Bureau of Economic Research project report) Bibliography: p. Includes index. 1. Taxation. 2. Saving and investment. I. Feldstein, Martin S. II. Series. HJ2305.E29 1987 332'.0415 86-25025 ISBN 0-226-24088-6 National Bureau of Economic Research

Officers Franklin A. Lindsay, Chairman Geoffrey Carliner, Executive Director Richard N. Rosett, Vice Chairman Charles A. Walworth, Treasurer Martin Feldstein, President and Chief Sam Parker, Director ofFinance and Executive Officer Administration

Directors at Large Moses Abramovitz George Hatsopoulos Peter G. Peterson Andrew Brimmer Walter W. Heller Robert V. Roosa Carl F. Christ Saul B. Klaman Richard N. Rosett George T. Conklin, Jr. Franklin A. Lindsay Bert Seidman Jean A. Crockett Roy E. Moor Eli Shapiro Morton Ehrlich Geoffrey H. Moore Stephen Stamas Martin Feldstein Michael H. Moskow Donald S. Wasserman Edward L. Ginzton James J. O'Leary Marina v.N. Whitman David L. Grove Robert T. Parry

Directors by University Appointment Marcus Alexis, Northwestern Andrew Postlewaite, Pennsylvania Charles H. Berry, Princeton Nathan Rosenberg, Stanford James Duesenberry, Harvard James Simler, Minnesota Ann F. Friedlaender, Massachusetts James Tobin, Yale Institute of TechnoLogy John Vernon, Duke J. C. LaForce, CaLifornia, Los AngeLes William S. Vickrey, Columbia Paul McCracken, Michigan Burton A. Weisbrod, Wisconsin James L. Pierce, CaLifornia, BerkeLey Arnold Zellner, Chicago

Directors by Appointment of Other Organizations Edgar Fiedler, NationaL Association of Rudolph A. Oswald, American Business Economists Federation ofLabor and Congress of Robert S. Hamada, American Finance Industrial Organizations Association Douglas D. Purvis, Canadian Economics Robert C. Holland, Committee for Association Economic Development Albert T. Sommers, The Conference James Houck, American Agricultural Board Economics Association Dudley Wallace, American Statistical David Kendrick, American Economic Association Association Charles A. Walworth, American Institute Douglass C. North, Economic History ofCertified Public Accountants Association

Directors Emeriti Arthur F. Burns Frank W. Fetter George B. Roberts Emilio G. Collado Thomas D. Flynn Willard L. Thorp Solomon Fabricant Gottfried Haberler