Tax Neutrality and the Investment Tax Credit / David F. Bradford.

Format:

Book

Author/Creator:

Bradford, David F.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0269.

NBER working paper series no. w0269

Language:

English

Subjects (All):

Investments--Taxation.

Investments.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1978.

Cambridge, Mass. : National Bureau of Economic Research, 1978.

Summary:

This paper concerns the question of how the rules for calculating the investment tax credit and the associated rules for calculating depreciation allowances for tax purposes should be structured to assure the "appropriate" relationship between the subsidy granted to long-lived assets and that to short-lived assets. The increasing rate of tax subsidy under the investment credit favors long-lived assets by comparison with a flat-rate credit, while the neglect of the credit in calculating depreciation allowances favors short-lived assets (for which the depreciation allowance is a more important element in the cash flow). In reviewing the literature on this issue, Emil Sunley focused on the question of whether the investment credit should vary with the durability of the asset purchased. He concluded that neutrality requires a subsidy rate increasing with the useful life of the asset in a way qualitatively similar to that prescribed in present U.S. law. This paper develops Sunley's discussion through the use of simple formal models of the yield from investment.

Notes:

Print version record

July 1978.