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Having their cake and eating it too

12 Apr 2011

The downturn in investment spending by Ca- In short, business investment spending was nadian businesses following the global financial the major source of Canada’s recent downturn, crisis in 2008 was the most dramatic and impor- and the slowness of the recovery in business tant channel through which the effects of that spending is a key reason why Canada’s recovery crisis were “imported” into Cana [...] Even during rate coffers: a cumulative total of $200 billion in the recession (which reduced sales and profits), uninvested cash flow was received by the busi- 10 canadian centre for policy alternatives Share of Cash Flow Reinvested (Percent) Percent of GDP ness sector since the recession began in the third will be retained and the rate will fall further to quarter of 2008. [...] Having THeir C ake and eaTing iT Too 15 Fixed Investments (Percent GDP) Fixed Investments (Percent GDP) section 2 Review of Previous Economic Studies of Business Investment Given the importance of business investment composite measures of the cost of capital, and spending to overall economic performance in the relative cost of substitutes). [...] The relevance of this ap- Another class of empirical studies of invest- proach to understanding tax policy, is that if the ment behaviour has emphasized the interactions cost of capital is seen to be the crucial determi- between the stock market and real business in- nant of investment, then policy measures to re- vestment, following on the insights of Tobin duce that cost (such as reductions in c [...] Given the importance explanatory variables in these regressions (all of energy-related projects in Canada’s included in first-difference form): overall investment, oil prices may have • The rate of growth of real GDP (measured an independent impact on investment as the change in the log of real GDP).
economics economy public investment canada business capital productivity corporations debt depreciation econometrics economic growth fdi investments mathematics prices earnings securities economic model cost of capital tax rate industrial productivity gdp macroeconomic capital (economics) dividend nominal econometric

Authors

Stanford, Jim

ISBN
9781926888606
Pages
38
Published in
Canada

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