NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation and the Tax Treatment of Firm Behavior

Alan J. Auerbach

NBER Working Paper No. 547 (Also Reprint No. r0168)
Issued in September 1980
NBER Program(s):   PE

In the past decade, economists have be-gun to realize that inflation, even when fully anticipated, constitutes a great deal more than a tax on money balances. The primary reason for inflation's wider impact is the existence of a tax system designed with stable prices in mind. This paper offers a brief summary of the effects of inflation on the tax treatment of the firm, focusing on four important decisions the firm makes: the scale of investment; the method of finance; the durability of assets used in production; and the holding period of these assets. There are a number of interesting and related issues which cannot be covered in a paper of this length. As I will be considering inflation that is both uniform and fully anticipated, questions concerning the behavior of the firm in response to uncertainty about inflation, or to a concommitant change in relative prices, will not arise.

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Document Object Identifier (DOI): 10.3386/w0547

Published: Auerbach, Alan J. "Inflation and the Tax Treatment of Firm Behavior." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 419-423.

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