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- Title
THE INFLUENCE OF UNCERTAINTY ON INVESTMENT.
- Authors
Nickell, S. J.
- Abstract
It is fairly clear from the foregoing analysis that government attempts to influence both the magnitude and direction of changes in private investment by manipulating the taxation structure confronting companies in the private sector can lead to severe problems. Persistent changes in the tax structure are a natural consequence of the government's desire to expand or contract investment in some or all sectors or regions of the economy in response to rapidly changing economic circumstances. However, such changes can lead to diverse untoward effects via their influence on expectations and the level of uncertainty. Pure uncertainty is liable to lead to general lowering of investment in industrial capacity. Given the problems involved in the sort of policies we have discussed, it remains to consider the alternatives. One possibility is, of course, for the government to cut back on its attempts to influence private sector decisions and to avoid policies designed for purposes such as macroeconomic stabilisation which have unpredictable side effects on particular areas of investment activity. Another alternative, given that the government feels that it is more or less essential to exert some coherent influence on private investment, is for it to become much more closely involved in the investment decisions of particular firms, guaranteeing some reduction in fiscal and other forms of uncertainty in return for a greater say in the decisions themselves. There may be some considerable difficulties, but at least in this approach there is a possibility of avoiding the somewhat unpredictable consequences which can follow from the standard kinds of fiscal manipulation.
- Subjects
UNCERTAINTY; CAPITAL investments; INVESTMENT policy; TAXATION; ECONOMICS
- Publication
Economic Journal, 1977, Vol 87, Issue 345, p47
- ISSN
0013-0133
- Publication type
Article
- DOI
10.2307/2231832