The Tax-Adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives

54 Pages Posted: 28 Jul 2014

See all articles by Sophia Chen

Sophia Chen

International Monetary Fund (IMF) - Research Department

Estelle P. Dauchy

Campaign for Tobacco Free Kids

Date Written: June 2014

Abstract

We propose a tax-adjusted q model with physical and intangible assets and estimate it with a self-collected comprehensive database of intangible assets. The presence of intangibles changes the accounting and economic measures of q. We show that when tax changes are temporary, the q model can be estimated by adjusting for the firm’s intangible stock and intangible intensity. We estimate our model using temporary investment tax incentive policies in the United States in the early 2000s. When the q-model accounts for intangible assets, the estimated investment elasticity to tax incentives is generally larger than otherwise. It is also larger for intangible-intensive firms, and increases with firm size.

Keywords: Intangible capital, Investment, Tax incentives, Tax changes, Econometric models, investment tax incentives, intangible assets, q model of investment, bonus depreciation, taxation, tax returns, tax policy, tax credit, tangible assets, tax change, tax credits, tax rates, public finance, tax base, capital expenditures, credit claims, tax reform, tax reforms

JEL Classification: H25, G31, E01

Suggested Citation

Chen, Sophia and Dauchy, Estelle P., The Tax-Adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives (June 2014). IMF Working Paper No. 14/104. Available at SSRN: https://ssrn.com/abstract=2472858

Sophia Chen (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Estelle P. Dauchy

Campaign for Tobacco Free Kids ( email )

1400 I Street NW
Suite 1200
Washington, DC New York 20005
United States
5857542532 (Phone)

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