TESTING THE IMPACT OF TAXATION ON CAPACITY CHOICE - A PUTTY CLAY APPROACH

We investigate the impact of taxation on a sample of Canadian copper m ines based on a 'putty clay' model, i.e. focusing on plant creations a nd major capacity changes. Our theoretical analysis shows that the cos t of capital differs in such an instance from its counterpart under a flexible neoclassical technology, particularly in the way the resource rent component enters the formula. Besides the influence of geologica l variables, our econometric results establish the effect of (net of f ederal, provincial, and mining taxes) expected prices on capacity choi ce. We complement these results by identifying a significant influence of tax characteristics, as distinct from the influence of gross price s per se.