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Accelerated depreciation and the efficacy of temporary fiscal policy : Implications for an inflationary economy

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  • Abel, Andrew B.

Abstract

The effect on investment of temporary tax rate changes depends on the age profile of depreciation deduct ions. 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 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.
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  • Abel, Andrew B., 1982. "Accelerated depreciation and the efficacy of temporary fiscal policy : Implications for an inflationary economy," Journal of Public Economics, Elsevier, vol. 19(1), pages 23-47, October.
    • Handle: RePEc:eee:pubeco:v:19:y:1982:i:1:p:23-47
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    1. Eisner, Robert, 1969. "Fiscal and Monetary Policy Reconsidered," American Economic Review, American Economic Association, vol. 59(5), pages 897-905, December.
    2. Abel, Andrew B, 1981. "Taxes, Inflation, and the Durability of Capital," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 548-560, June.
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    1. Bermperoglou, Dimitrios & Deli, Yota & Kalyvitis, Sarantis, 2019. "Investment tax incentives and their big time-to-build fiscal multiplier," Kiel Working Papers 2143, Kiel Institute for the World Economy (IfW Kiel).
    2. Gürtler, Marc & Sieg, Gernot, 2006. "Crunch time: The optimal policy to avoid the "Announcement Effect" when terminating a subsidy," Working Papers FW24V2, Technische Universität Braunschweig, Institute of Finance.
    3. Gürtler Marc & Sieg Gernot, 2010. "Crunch Time: A Policy to Avoid the ‘Announcement Effect’ when Terminating a Subsidy," German Economic Review, De Gruyter, vol. 11(1), pages 25-36, February.
    4. Schubert Stefan F. & Turnovsky Stephen J., 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, De Gruyter, vol. 7(2), pages 135-161, May.
    5. Arkin Vadim & Arkina Svetlana & Slastnikov Alexander, 2003. "Investment Stimulation by a Depreciation Mechanism," EERC Working Paper Series 02-05e, EERC Research Network, Russia and CIS.

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