Tax Incentives and Equipment Investment

Clark, Peter K.
July 1993
Brookings Papers on Economic Activity;1993, Issue 1, p317
Academic Journal
The article focuses on tax incentives and equipment investment. Over the past 40 years, tax treatment of income from capital in general, and income from producer's durable equipment in particular, has been changed in the U.S. an amazing number of times. Depreciation allowances have been accelerated and then retarded, depreciation methods have ranged from straight line to double-declining-balance, investment tax credits have been enacted. In addition, both corporate and personal tax rates have moved over a substantial range. In general, the trend in tax rates has been downward, and reaching political consensus on this trend has been an uneven and contentious process. Inflation has at times created serious distortions in effective tax rates, and changes in the tax code may have been aimed at mitigating these effects. Most importantly, various administrations have attempted to use tax stimulus for investment as part of their efforts to fine-tune economic activity through short-term fiscal policy changes.


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