Provides a discussion of the important tax changes affecting investment introduced in TRA'86. Concludes that the cost of capital innovations contributes to investment forecast innovations and that the effect of the cost of capital on equipment and structures investment is significant both...

We use earnings forecasts from securities analysts to construct a new measure of the neoclassical fundamentals that drive investment spending. We find that investment responds significantly to our new measure of fundamentals but is insensitive to cash flow, even for firms typically thought to be...