BPEA | 2004 No. 2

Investment, Overhang, and Tax Policy

Austan Goolsbee and
Austan Goolsbee Robert P. Gwinn Professor of Economics - University of Chicago Booth School of Business
Mihir A. Desai
Mihir A. Desai Harvard University

2004, No. 2

THE PAST DECADE HAS seen an unusual pattern of investment. The boom
of the 1990s generated unusually high investment rates, particularly in
equipment, and the bust of the 2000s witnessed an unusually large decline
in investment. A drop in equipment investment normally accounts for
about 10 to 20 percent of the decline in GDP during a recession; in the
2001 recession, however, it accounted for 120 percent.