Tax Reform and Adjustment Costs: the Impact on Investment and Market Value

46 Pages Posted: 28 Sep 2000 Last revised: 2 Jan 2002

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: December 1986

Abstract

This paper derives analytical measures of the combined effects of tax changes and adjustment costs on investment and market value. Unlike earlier measures, the effective tax rate derived is valid in the presence of adjustment costs and anticipated tax changes. The derived measure of the impact of tax changes on market value permits one to estimate the effects of various tax changes on market value and its components, discounted pure profits and normal returns to capital, and to decompose changes in the value of capital into changes in the marginal value of new capital and changes in the relative value of new and existing capital. These measures are used to evaluate tax changes similar to those introduced by the recent U.S. tax reform.

Suggested Citation

Auerbach, Alan Jeffrey, Tax Reform and Adjustment Costs: the Impact on Investment and Market Value (December 1986). NBER Working Paper No. w2103. Available at SSRN: https://ssrn.com/abstract=243215

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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