Methods currently used to calculate capital consumption, the stock of capital, and the sources of economic growth do not adequately measure the underlying growth in inputs due to technological advance. This lack affects tax policy as well as the design of programs targeting potential areas of...

This article analyzes the measurement of the capital stock when technological advance is embodied in capital. The source of the problem is that capital is not homogeneous across vintages. Which measure of the capital stock to use is dictated by the question being addressed.