Capital allocation: How the US compares with other major industrialized nations

Data for the seven major industrialized nations spanning two decades provide evidence that capital formation as a percentage of gross domestic product differs significantly among the major industrialized nations. Comparatively, the US ranks among the leaders in residential structures and among the lowest in commercial structures. However, US private sector allocation of capital to machinery and equipment appears to be in line with other major trading nations. The rate of capital cost recovery appears to affect the amount of capital allocated to commercial structures but not to residential structures or machinery and equipment. Likewise, changes in the capital cost recovery provisions under the Economic Recovery Tax Act of 1981 seem to have led to an increase in capital allocated to commercial structures and to a marginal increase in capital allocated to machinery and equipment.