Finance Papers

Document Type

Journal Article

Date of this Version

10-1982

Publication Source

Journal of Public Economics

Volume

19

Issue

1

Start Page

23

Last Page

47

DOI

10.1016/0047-2727(82)90050-0

Abstract

The effect on investment of temporary tax rate changes depends on the age profile of depreciation deductions. If the depreciation allowance schedule is accelerated, then temporary cuts in the corporate tax rate could reduce investment. Inflation causes the age profile of real depreciation deductions to become accelerated and thus could make temporary tax cuts have a contractionary effect on investment. Two currently proposed reforms are shown to exacerbate this effect. Under each of these proposals, temporary tax cuts are likely to have opposite effects on investment in short-lived and long-lived capital, thereby complicating the conduct of countercyclical fiscal policy.

Copyright/Permission Statement

© 1982. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Embargo Date

3-22-2004

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Date Posted: 27 November 2017

This document has been peer reviewed.