During the past twenty-five years, the Canadian federal government has introduced capital cost allowance measures eight times in order to change the direction or level of investment expenditures. Although the effectiveness of these measures has been the subject of a good deal of recent public controversy, no econometric studies exist which measure their impact. In this paper we examine the change in net machinery and equipment investment in the manufacturing sector of the Canadian economy caused by the capital cost allowance measures. We discover the timing and size of the impacts of the measures to be quite different from that which fiscal policy authorities currently believe.
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