Economics, Econometrics and Finance
8 years ago

Household Investment Lagging Behind Business Investment in Market Dynamics.

RePEc: Research Papers in Economics
Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment
Hashmat Khan, Jean‐François Rouillard

Paper Summary

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The model in Fisher (2007) shows that when the capital tax rate is set at 35%, household investment lags behind business investment and is less volatile. Increasing household capital complementarity doesn't fix this issue because it leads to unrealistic factor shares in market production. Understanding U.S. investment dynamics is still a big challenge for economists.