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Capital Stock Depreciation, Tax Rules, and Composition of Aggregate Investment

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  • Daniel Levy

    (Bar-Ilan University [Israël], Emory University [Atlanta, GA], RCEA - Rimini Center for Economic Analysis)

Abstract

I estimate time varying aggregate capital stock depreciation rates for the post-war U.S. economy using capital-investment evolution equation along with the data on the annual net capital stock and corresponding quarterly gross investment series. I estimate depreciation rates of consumer durable goods, producer durable goods, and nonresidential business structures. The estimation results suggest that the three depreciation rate series have been behaving very differently over time. In particular, I find that over time the implied depreciation rate of nonresidential business structures has remained stable, the implied depreciation rate of consumer durable goods has been steadily declining, while the implied depreciation rate of producer durable goods has been increasing, especially during the last 10–15 years. These findings are interpreted in terms of the changes in the composition of the aggregate nonresidential business fixed and producer durable good capital stocks. In addition, I discuss the implications of the changes introduced during the 1980s in rules and regulations governing a depreciation accounting for tax purposes, and their effect on the estimates of capital depreciation rates derived in this paper. The main argument the paper makes is that technological progress may be leading to accelerated depreciation of producer durable goods and equipment since newer and more advanced technology makes older equipment obsolete. The empirical evidence reported in this paper supports this argument.
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Suggested Citation

  • Daniel Levy, 1995. "Capital Stock Depreciation, Tax Rules, and Composition of Aggregate Investment," Post-Print hal-02382794, HAL.
    • Handle: RePEc:hal:journl:hal-02382794
    DOI: 10.3233/JEM-1995-21104
    Note: View the original document on HAL open archive server: https://hal.science/hal-02382794
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    References listed on IDEAS

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    1. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
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    Cited by:

    1. Nusrat Jahan, 2020. "Does Asset Durability Impede Financing? An Empirical Assessment," Carleton Economic Papers 20-17, Carleton University, Department of Economics, revised 07 Aug 2022.
    2. Ibrahima Amadou Diallo, 2020. "A Sensitivity Analysis on the Economic Vulnerability-Growth Nexus: Theory and Practice," Working Papers hal-03109383, HAL.
    3. Santiago J. Gahn, 2022. "Towards an explanation of a declining trend in capacity utilisation in the US economy," Working Papers PKWP2214, Post Keynesian Economics Society (PKES).
    4. César Rodríguez-Gutiérrez & Juan Francisco Canal-Domínguez, 2020. "Knowledge capital and productivity in Spanish industry," Revista de Economía Laboral - Spanish Journal of Labour Economics, Asociación Española de Economía Laboral - AEET, vol. 17, pages 46-64.
    5. Miguel Santos, 2016. "The Right Fit for the Wrong Reasons: Real Business Cycle in an Oil-dependent Economy," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 53(1), pages 61-94, December.
    6. Erdal Karagol, 2002. "The Causality Analysis of External Debt Service and GNP : The Case of Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(1), pages 39-64.
    7. Igor Krejčí & Kristýna Vltavská, 2013. "Measuring quarterly net fixed capital stock in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2367-2376.

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    More about this item

    Keywords

    Time Varying Depreciation Rate; Capital Stock; Consumer Durable Goods; Producer Durable Goods; Business Structures; Technological Progress;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

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