Investment Incentives and the Discounting of Depreciation Allowances

21 Pages Posted: 8 Jun 2004 Last revised: 7 Sep 2008

See all articles by Lawrence H. Summers

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: June 1986

Abstract

This paper examines the discounting of depreciation allowances boththeoretically and empirically. Economic theory suggests that depreciation taxshields should be discounted at the after tax riskless rates. However, asurvey of 200 major corporations indicates that they employ much higherdiscount rates to depreciation allowances. Typical discount rates are in the15 percent range. This finding suggests that "frontloaded" incentives likethe ITC provide maximal stimulus to corporate investment.

Suggested Citation

Summers, Lawrence H., Investment Incentives and the Discounting of Depreciation Allowances (June 1986). NBER Working Paper No. w1941. Available at SSRN: https://ssrn.com/abstract=344768

Lawrence H. Summers (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
46
Abstract Views
869
PlumX Metrics