The project consists of a series of related empirical studies on the determinants of business saving and business fixed investment in the United States. While these are traditionally areas of activist fiscal policy, there is still very little convincing empirical evidence on a variety of important topics. Those to be studied are: the relationship between household and business saving; an analysis of the pattern of business fixed investment since the Tax Reform Act of 1986; a comparison of alternative models of business fixed investment; and an examination of the relationship between overall domestic U.S. investment and foreign direct investment in the United States. The project should increase our understanding of the extent to which fiscal policy can and has influenced capital accumulation in the U.S. This is an area of intense policy activism, but the state of economic knowledge remains largely based on theoretical predictions instead of the type of empirical analysis carried out under this project. The contribution from this project is especially timely and important because it helps explain recent changes in the U.S. economic environment, such as the sharp decline in corporate saving, the large increase in capital inflows from abroad, and the unexpected strong performance of business fixed investment since the Tax Reform Act of 1986.
