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Tax‐Adjusted q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives

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  • Sophia Chen
  • Estelle P. Dauchy

Abstract

We propose a tax‐adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the United States in the early 2000s. We find that investment responds moderately to tax incentives, but allowing for heterogeneity reveals that intangible‐intensive firms respond more than physical‐intensive firms and that this difference is accentuated among large firms. Accounting for intangible assets increases the estimated total investment response from 3.7 to 14.3% of aggregate investment in 2000 among the largest 500 firms. Our results suggest that understanding the behavior of large and intangible‐intensive firms matters for investment policy.

Suggested Citation

  • Sophia Chen & Estelle P. Dauchy, 2017. "Tax‐Adjusted q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives," Southern Economic Journal, John Wiley & Sons, vol. 83(4), pages 972-992, April.
    • Handle: RePEc:wly:soecon:v:83:y:2017:i:4:p:972-992
    DOI: 10.1002/soej.12203
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    1. Sebastien Bradley & Estelle Dauchy & Makoto Hasegawa, 2018. "Investor valuations of Japan’s adoption of a territorial tax regime: quantifying the direct and competitive effects of international tax reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 581-630, June.

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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