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The Effects Of Changes In The Tax Structure On Agricultural Asset Replacement

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  • Smith, Vincent H.

Abstract

This paper uses a deterministic asset replacement model to examine the implications of the 1986 Tax Reform Act (TRA) for replacement investment in U.S. agriculture. The optimal replacement age for an asset is shown to be inversely related to the size of investment tax credits and the present value of depreciation allowances but generally directly related to marginal tax rate. Simulation results indicate that the net effects of the TRA vary across assets. Replacement ages for assets with relatively long depreciation lives (e.g., farm structures) tend to fall. Those for assets with relatively short depreciation lives rise (e.g., tractors).

Suggested Citation

  • 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.
    • Handle: RePEc:ags:sojoae:29906
    DOI: 10.22004/ag.econ.29906
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    References listed on IDEAS

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    1. J. M. Bates & A. J. Rayner, 1980. "Inflation and Farm Tractor Replacement in the U.S.: A Simulation Model: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(4), pages 832-833.
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    3. Lynne, Gary D., 1988. "Machinery Replacement, Multiple Optima, and the 1986 Tax Reform Act," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 20(01), pages 179-187, July.
    4. J. M. Bates & A. J. Rayner & P. R. Custance, 1979. "Inflation and Farm Tractor Replacement in the U.S.: A Simulation Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(2), pages 331-334.
    5. R. K. Perrin, 1972. "Asset Replacement Principles," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(1), pages 60-67.
    6. 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.
    7. 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.
    8. Anthony H. Chisholm, 1974. "Effects of Tax Depreciation Policy and Investment Incentives on Optimal Equipment Replacement Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(4), pages 776-783.
    9. 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.
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    Cited by:

    1. Kingwell, Ross S., 1996. "On-Farm Factors Influencing Investment In Crop Sowing Machinery," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 40(3), pages 1-14, December.

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