IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v32y2004i3p235-268.html
   My bibliography  Save this article

The Effect of Taxes on the Retirement of Machinery and Equipment

Author

Listed:
  • B. Anthony Billings
  • Sergei N. Glazunov

Abstract

This study extends prior research explaining the role of taxes in investment decisions regarding depreciable business assets. It also assesses whether firms’U.S. alternative minimum tax (AMT) status influenced the level of machinery and equipment retired. The article shows analytically that firms paying the AMT have costs of capital lower than firms paying the regular tax when debt shares (debt-to-asset ratio) in their capital structure were lower than a critical level. Two hypotheses are tested: (a) whether firms that paid the AMT and had debt shares below a critical level retired higher amounts of machinery and equipment than other firms and (b) whether firms that paid the AMT retired lower amounts of machinery and equipment in the period following the modification of the AMT formula in 1989 than in the pre-1990 period. Analysis of COMPUSTAT data froma sample of 95 industrial firms over the 1987-1993period supports both hypotheses.

Suggested Citation

  • B. Anthony Billings & Sergei N. Glazunov, 2004. "The Effect of Taxes on the Retirement of Machinery and Equipment," Public Finance Review, , vol. 32(3), pages 235-268, May.
    • Handle: RePEc:sae:pubfin:v:32:y:2004:i:3:p:235-268
    DOI: 10.1177/1091142104264510
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1091142104264510
    Download Restriction: no
    File URL: https://libkey.io/10.1177/1091142104264510?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. Lyon, Andrew B., 1990. "Investment Incentives Under the Alternative Minimum Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(4), pages 451-465, December.
    2. repec:bla:jfinan:v:53:y:1998:i:1:p:131-162 is not listed on IDEAS
    3. B. Douglas Bernheim, 1989. "Incentive Effects of the Corporate Alternative Minimum Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 3, pages 69-96, National Bureau of Economic Research, Inc.
    4. Cummins, Jason G. & Hassett, Kevin A., 1992. "The Effects of Taxation on Investment: New Evidence from Firm Level Panel Data," National Tax Journal, National Tax Association, vol. 45(3), pages 243-51, September.
    5. Boynton, Ce & Dobbins, Ps & Plesko, Ga, 1992. "Earnings Management And The Corporate Alternative Minimum Tax," Journal of Accounting Research, Wiley Blackwell, vol. 30, pages 131-153.
    6. Lyon, Andrew B., 1990. "Investment Incentives under the Alternative Minimum Tax," National Tax Journal, National Tax Association, vol. 43(4), pages 451-65, December.
    7. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
    8. Cummins, Jason G. & Hassett, Kevin A., 1992. "The Effects of Taxation on Investment: New Evidence From Firm Level Panel Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(3), pages 243-251, September.
    9. Dyl, Edward A & Long, Hugh W, 1969. "Abandonment Value and Capital Budgeting: Comment," Journal of Finance, American Finance Association, vol. 24(1), pages 88-95, March.
    10. Chen, Son-Nan, 1991. "Optimal Asset Abandonment and Replacement: Tax and Inflation Considerations," The Financial Review, Eastern Finance Association, vol. 26(2), pages 157-177, May.
    11. Brenner, Menachem & Venezia, Itzhak, 1983. "The Effects of Inflation and Taxes on Growth Investments and Replacement Policies," Journal of Finance, American Finance Association, vol. 38(5), pages 1519-1528, December.
    Full references (including those not matched with items on IDEAS)

    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. Rainer Niemann, 2004. "Asymmetric Taxation and Cross-Border Investment Decisions," CESifo Working Paper Series 1219, CESifo.
    2. Park, Jongsang, 2016. "The impact of depreciation savings on investment: Evidence from the corporate Alternative Minimum Tax," Journal of Public Economics, Elsevier, vol. 135(C), pages 87-104.
    3. Chirinko, Robert S., 2002. "Corporate Taxation, Capital Formation,and the Substitution Elasticity Between Labor and Capital," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(2), pages 339-355, June.
    4. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292, Elsevier.
    5. Niemann, Rainer, 2004. "Entscheidungswirkungen von Verlustverrechnungsbeschränkungen bei der Steuerplanung grenzüberschreitender Investitionen," Tübinger Diskussionsbeiträge 276, University of Tübingen, School of Business and Economics.
    6. Niemann, Rainer, 2003. "Wie schädlich ist die Mindestbesteuerung? Steuerparadoxa in der Verlustrechnung," Tübinger Diskussionsbeiträge 259, University of Tübingen, School of Business and Economics.
    7. Sureth, Caren & Voß, Armin, 2005. "Investitionsbereitschaft und zeitliche Indifferenz bei Realinvestitionen unter Unsicherheit und Steuern," arqus Discussion Papers in Quantitative Tax Research 2, arqus - Arbeitskreis Quantitative Steuerlehre.
    8. Caren Sureth & Ralf Maiterth, 2006. "Wealth Tax As Alternative Minimum Tax ? - the Impact of Minimum Taxation on Business Structure and Strategy -," EcoMod2006 272100093, EcoMod.
    9. Niemann, Rainer, 2007. "Risikoübernahme, Arbeitsanreiz und differenzierende Besteuerung," arqus Discussion Papers in Quantitative Tax Research 28, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
    11. Milyausha R. Pinskaya & Yuliya A. Steshenko & Kermen N. Tsagan-Mandzhieva, 2023. "Evaluation of the Effectiveness of Investment Tax Incentives in Russia," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 22(3), pages 522-550.
    12. Carlson, Curtis & Metcalf, Gilbert E., 2008. "Energy Tax Incentives and the Alternative Minimum Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(3), pages 477-491, September.
    13. Robert S. Chirinko & Steven M. Fazzari & Andrew P. Meyer, 1996. "What Do Micro Data Reveal About the User Cost Elasticity?: New Evidence on the Responsiveness of Business Capital Formation," Economics Working Paper Archive wp_175, Levy Economics Institute.
    14. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 2006. "Investment Behavior, Observable Expectations, and Internal Funds," American Economic Review, American Economic Association, vol. 96(3), pages 796-810, June.
    15. Schaller, Huntley, 2006. "Econometric Issues in Estimating User Cost Elasticity," Economics Series 194, Institute for Advanced Studies.
    16. Ms. Petya Koeva Brooks, 2001. "Time-To-Build and Convex Adjustment Costs," IMF Working Papers 2001/009, International Monetary Fund.
    17. Boone, Jeff P., 1998. "The effect of the corporate alternative minimum tax on investment in oil and gas exploration and development," Journal of Energy Finance & Development, Elsevier, vol. 3(2), pages 101-128.
    18. Austan Goolsbee, 2000. "The Importance of Measurement Error in the Cost of Capital," NBER Working Papers 7558, National Bureau of Economic Research, Inc.
    19. M. Ishaq Nadiri & Ingmar Prucha, 2001. "Dynamic Factor Demand Models and Productivity Analysis," NBER Chapters, in: New Developments in Productivity Analysis, pages 103-172, National Bureau of Economic Research, Inc.
    20. Andrew B. Lyon, 1992. "Tax Neutrality Under Parallel Tax Systems," Public Finance Review, , vol. 20(3), pages 338-358, July.

    More about this item

    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:sae:pubfin:v:32:y:2004:i:3:p:235-268. 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: SAGE Publications (email available below). General contact details of provider: .

    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.