Do companies reduce investment if their profits are taxed more heavily? This question is central to economic growth. Despite its importance, there is still no consensus among scholars on how strong the reaction of firms to taxes is.
Ultimately, this is an empirical question. This study shows that it is important to take into account the long-term co-integration relationship between the so-called cost of capital, capital stock and turnover, when estimating the user cost of capital elasticity.
