Fixed Capital Formation in the British Economy, 1956-1965.

This article focuses on the determinants of real net investments of physical assets leading to fixed capital formation in Great Britain during 1956-1965. Some of the econometric analyses dealing with aspects of the post-war British economy are illustrated and analyzed here. In 1968, a study sponsored by the Brookings Institution was compelled to acknowledge the absence of any econometric investigation of the British system of investment incentives. Economic models that were used to measure the post-war British economy explicitly include variables representing three types of capital allowances and a variable representing a composite tax-rate. The latter takes account of income tax, profits tax and a number of other special levies. The Jorgenson's model provided a convenient starting point in the process of building these models, although its translation to a different economy involved the rejection of Jorgenson's specification for the system of tax allowances chargeable against gross income as defined for tax purposes. A part of British economic data for the period which extends from the first quarter of 1956 to the present is used here as the basis for the empirical results for the dependent variable from the third quarter of 1957 to the final quarter of 1965 inclusive.