This brief assesses the effect of a capital gains tax cut on firms' decisions to undertake new investment projects and the possible effect of such projects on economic growth and employment. The authors' analysis takes into account such factors as projects' degree of uncertainty, investors'...

This brief assesses the effect of a capital gains tax cut on firms' decisions to undertake new investment projects and the possible effect of such projects on economic growth and employment. The authors' analysis takes into account such factors as projects' degree of uncertainty, investors'...

Congress currently is considering changes in the capital gains tax, including reducing the rate, indexing the rate to inflation, or some combination of reduction and indexing. These changes have been advocated on the grounds that a cut in the rate will stimulate investment and economic growth....

Research Associate Steven M. Fazzari and Benjamin Herzon assess the effect of a capital gains tax cut on firms' decisions to undertake new investment projects and the possible effect of such projects on economic growth and employment. Their analysis takes into account such factors as projects'...

A well-known but under-emphasized feature of the business cycle is that the flow of internal finance is highly procyclical. We argue that finance constraints lead firms to offset a large proportion of internal finance fluctuations through inventory (dis)investment. We construct three panels of...

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal...

We analyze the microfoundations for Keynesian aggregate demand effects by considering the link between aggregate demand and firm production decisions under monopolistic competition. Macroeconomic equilibrium is characterized in a simple graphical framework that facilitates comparison of several...

The price sensitivity of business investment spending is a central element in economic analysis. A substantial response of capital spending to its user cost, which combines interest, tax, and depreciation rates with relative prices, is critical to evaluating the effectiveness of monetary policy,...