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Tax Policy under Nongeometric Physical Depreciation

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  • Tryphon Kollintzas

Abstract

This article takes into account most important features of the U.S. corporation income tax structure in the derivation of the user cost of capital from a model that allows for nonstatic expectations and nongeometric physical depreciation. The depreciation component of the derived user cost of capital is a function of the discounted future stream of after-tax replacement costs necessary to maintain indefinitely one unit of capital. This establishes a previously neglected channel through which tax policy may affect the user cost of capital and therefore fixed investment. The major implication of this finding is that tax policy changes that are perceived to be relatively temporary may have a smaller impact on fixed investment than previously thought.

Suggested Citation

  • Tryphon Kollintzas, 1986. "Tax Policy under Nongeometric Physical Depreciation," Public Finance Review, , vol. 14(3), pages 263-288, July.
    • Handle: RePEc:sae:pubfin:v:14:y:1986:i:3:p:263-288
    DOI: 10.1177/109114218601400302
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    References listed on IDEAS

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