The Impacts on Capital Allocation of Some Aspects of the Economic Recovery Tax Act of 1981 / Patric H. Hendershott, James D. Shilling.

Format:

Book

Author/Creator:

Hendershott, Patric H.

Contributor:

National Bureau of Economic Research.

Shilling, James D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0825.

NBER working paper series no. w0825

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1981.

Summary:

This paper develops and employs a five-asset, four-household and single-business sector simulation model to measure the long-run impacts of the major provisions of the Economic Recovery Tax Act of 1981 on the allocation of a fixed capital stock among owner-occupied housing, rental housing, and nonresidential capital. The specific provisions analyzed are the increases in tax depreciation for nonresidential capital and rental housing and the reduction in the maximum tax rate on unearned income. Our analysis suggests a 6 percent increase in nonresidential capital, an 11 percent decline in owner-occupied housing and little change in rental housing (the increase in the number of renters -- the homeownership rate declines by 1 1/2 percentage points -- offsets a decline in the quantity of rental services demanded per renter). In the absence of an increase in aggregate saving, real pretax interest rates rise by nearly two percentage points. Corporate profit taxes decline by 60 percent, and after-tax earnings rise by 25 percent. As a result of the Act, the net (of depreciation) user costs for the three types of capital will almost be equalized.

Notes:

Print version record

December 1981.