Investment Incentives and the Discounting of Depreciation Allowances
AbstractThis paper examines the discounting of depreciation allowances both theoretically and empirically. Economic theory suggests that depreciation tax shields should be discounted at the after tax riskless rates. However, a survey of 200 major corporations indicates that they employ much higher discount rates to depreciation allowances. Typical discount rates are in the 15 percent range. This finding suggests that "frontloaded" incentives like the ITC provide maximal stimulus to corporate investment.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1941.
Date of creation: Feb 1988
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Publication status: published as Lawrence H. Summers. "Investment Incentives and the Discounting of Depreciation Allowances," in Martin Feldstein, ed., "The Effects of Taxation on Capital Accumulation" University of Chicago Press (1987)
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Other versions of this item:
- Lawrence H. Summers, 1987. "Investment Incentives and the Discounting of Depreciation Allowances," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 295-304 National Bureau of Economic Research, Inc.
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