IDEAS home Printed from https://ideas.repec.org/a/ags/sojoae/29706.html
   My bibliography  Save this article

Machinery Replacement, Multiple Optima, And The 1986 Tax Reform Act

Author

Listed:
  • Lynne, Gary D.

Abstract

The 1986 Tax Reform Act established a first year $10,000 expensing option and, for most farm equipment, a 7-year depreciation schedule. Under a profit maximization criterion, these tax law features can lead to multiple optima dependent upon discount and marginal tax rates. For example, the economically efficient time to reinvest under a 2 percent after tax discount rate is at 4, 8, and 30 years for the grower in a 33 percent tax bracket. Thus, the profit maximization behavioral rule needs to be supplemented with knowledge about a farmer's objectives in order to select the "correct" optimal reinvestment interval.

Suggested Citation

  • Lynne, Gary D., 1988. "Machinery Replacement, Multiple Optima, And The 1986 Tax Reform Act," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 20(1), pages 1-9, July.
    • Handle: RePEc:ags:sojoae:29706
    DOI: 10.22004/ag.econ.29706
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/29706/files/20010179.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.29706?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. R. K. Perrin, 1972. "Asset Replacement Principles," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(1), pages 60-67.
    2. Donald W. Reid & Garnett L. Bradford, 1983. "On Optimal Replacement of Farm Tractors," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(2), pages 326-331.
    3. Ronald D. Kay & Edward Rister, 1976. "Effects of Tax Depreciation Policy and Investment Incentives on Optimal Equipment Replacement Decisions: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 58(2), pages 355-358.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Helmers, Glenn A. & Watts, Myles J. & Smith, Vincent H. & Atwood, Joseph, 1990. "The Impact Of Income Taxes On Resource Allocation And Structure Of Agriculture," 1990 Conference, January 6-9, Albuquerque, New Mexico 260181, Regional Research Committe NC-181: Determinants of Farm Size and Structure.
    2. Unknown, 1998. "Commodity Costs and Returns Estimation Handbook (entire book-condensed file)," Commodity Costs and Returns Estimation Handbook,, Iowa State University.
    3. Batterham, Robert L. & Fraser, K.I., 1995. "Capital Equipment Replacement Decisions," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 63(01), pages 1-8, April.
    4. Smith, Vincent H., 1990. "The Effects Of Changes In The Tax Structure On Agricultural Asset Replacement," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 22(1), pages 1-9, July.
    5. Unknown, 1998. "References/Literature Cited," Commodity Costs and Returns Estimation Handbook,, Iowa State University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. VanTassell, Larry W. & Nixon, Clair J., 1989. "A Further Look at the Effect of Federal Tax Laws on Optimal Machinery Replacement," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 21(2), pages 77-84, December.
    2. Smith, Vincent H., 1990. "The Effects Of Changes In The Tax Structure On Agricultural Asset Replacement," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 22(1), pages 1-9, July.
    3. McClelland, John W. & Wetzstein, Michael E. & Noles, Richard K., 1987. "Optimal Replacement Policies for Recyclable Assets," 1987 Annual Meeting, August 2-5, East Lansing, Michigan 270113, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Bradford, Garnett L. & Eidman, Vernon R. & Jensen, Harald R., 1978. "A Systems Model Of The Indirect Energy Expended In Farm Machinery Production And Use," Staff Papers 13285, University of Minnesota, Department of Applied Economics.
    5. Reid, Donald W. & Skees, Jerry R., 1985. "Some Potential Effects of Changing From a Progressive to a Flat Income Tax Rate Structure," 1985 Annual Meeting, August 4-7, Ames, Iowa 278654, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Helmers, Glenn A. & Watts, Myles J. & Smith, Vincent H. & Atwood, Joseph, 1990. "The Impact Of Income Taxes On Resource Allocation And Structure Of Agriculture," 1990 Conference, January 6-9, Albuquerque, New Mexico 260181, Regional Research Committe NC-181: Determinants of Farm Size and Structure.
    7. VanTassell, Larry W. & Nixon, Clair J., 1988. "Machinery Replacement Decisions and the Tax Reform Act of 1986," 1988 Annual Meeting, August 1-3, Knoxville, Tennessee 270199, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Davis, Neal & Hanson, Gregory D. & Kinnucan, Henry, 1986. "Taxation And Agriculture: An Annotated Bibliography Of Selected Journals," Staff Reports 277841, United States Department of Agriculture, Economic Research Service.
    9. Bradford, Garnett L., 1981. "Comment: Energy Accounting: The Case Of Farm Machinery In Maryland," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 13(1), pages 1-3, July.
    10. Kay, Ronald D. & Rister, Edward, 1975. "The Effects of Income Tax Regulations on Farm Equipment Replacement Age and Cost," WAEA/ WFEA Conference Archive (1929-1995) 323852, Western Agricultural Economics Association.
    11. Ibendahl, Gregory & Griffin, Terry W., 2021. "Machinery Replacement Strategies," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2021.
    12. Wetzstein, Michael E. & Musser, Wesley N. & McClendon, Ronald W. & Edwards, David M., 1990. "A Case Study Of Timeliness In The Selection Of Risk-Efficient Machinery Complements," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 22(2), pages 1-13, December.
    13. Melton, Bryan E., 1980. "Economics Of Beef Cow Culling And Replacement Decisions Under Genetic Progress," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 5(2), pages 1-12, December.
    14. Jean-Paul Chavas & Richard M. Klemme, 1986. "Aggregate Milk Supply Response and Investment Behavior on U.S. Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(1), pages 55-66.
    15. Dumler, Troy J. & Burton, Robert O., Jr. & Kastens, Terry L., 2000. "Use Of Alternative Depreciation Methods To Estimate Farm Tractor Values," 2000 Annual meeting, July 30-August 2, Tampa, FL 21800, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2024. "Enhancing Predictive Accuracy in European Agricultural Tractor Residual Value Estimation: A Double Square Root Regression Reappraisal," Agriculture, MDPI, vol. 14(5), pages 1-19, April.
    17. Deepa Pradhan & Tihomir Ancev & Ross Drynan & Michael Harris, 2011. "Management of Water Reservoirs (Embungs) in West Timor, Indonesia," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(1), pages 339-356, January.
    18. Weersink, Alfons & Stauber, Steve, 1988. "Optimal Replacement Interval And Depreciation Method For A Grain Combine," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 13(1), pages 1-11, July.
    19. Weiland, Brandon & Sesmero, Juan Pablo & Preckel, Paul & Wetzstein, Michael E., 2017. "Can Wood Pellets Save Coal?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258250, Agricultural and Applied Economics Association.
    20. Nelson, Kenneth E. & Purcell, Wayne D., 1973. "A Comparison Of Liveweight, Carcass And Lean Meat Criteria For The Feedlot Replacement Decision," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 5(2), pages 1-9, December.

    More about this item

    Keywords

    Political Economy;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:sojoae:29706. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/saeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.