NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Accelerated Depreciation and the Efficacy of Temporary Fiscal Policy: Implications for an Inflationary Economy

Andrew B. Abel

NBER Working Paper No. 596 (Also Reprint No. r0353)
Issued in December 1980
NBER Program(s):   EFG

The effect on investment of temporary tax rate changes depends on the age profile of depreciation deduct ions. If the depreciation allowance schedule is accelerated, then temporary cuts in the corporate tax rate could reduce investment. Inflation causes the age profile of real depreciation deductions to become accelerated and thus could make temporary tax cuts have a contractionary effect on investment. Two currently proposed reforms are shown to exacerbate this effect. Under these proposals, temporary tax cuts are likely to have opposite effects on investment in short-lived and long-lived capital, thereby complicating the conduct of countercyclical fiscal policy.

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Document Object Identifier (DOI): 10.3386/w0596

Published: Abel, Andrew B. "Accelerated Depreciation and the Efficacy of Temporary Fiscal Policy: Implications for an Inflationary Economy." Journal of Public Economics, Vol. 19, (1982), pp. 23-47.

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