Toward a Three-Sectoral Reproduction Model of Fixed Capital Depreciation and Investment-Driven Economic Growth: Theory and Policy Simulations from Chinese Input-Output Data

33 Pages Posted: 14 Oct 2020

See all articles by Bangxi Li

Bangxi Li

Tsinghua University

Chong Liu

affiliation not provided to SSRN

Jim Huangnan Shen

School of Management, Fudan University ; Center for International Development, Harvard Kennedy School, Harvard University; Core China Research Center, School of Economics and Business, University of Navarra

Date Written: July 1, 2020

Abstract

The accelerated depreciation policy on fixed assets is a representative tax reduction policy in China. However, it is rarely systematically studied on the macro-level. This paper builds a general model for analysing accelerated depreciation. It uses China's input-output data (1987-2015) to test and quantify the role of accelerated depreciation in promoting economic growth under different asset structures. The results show that accelerated depreciation with investment has a positive effect on economic growth. It becomes more significant as the depreciation period shortens, and is also limited by the asset structure. This paper discusses the possible situations in which tax incentives are not used for investment, and finds that shortening the depreciation period leads to a negative adjustment in economic accounting. This effect has a depreciation turning point where the rate of change increases sharply; this corresponds with the minimum depreciation period for accelerated depreciation in real terms. This paper proposes a method of estimating the depreciation turning point, and calculates the minimum weighted average of the accelerated depreciation period in China (1987-2015), thus providing effective proposals for the formulation and implementation of related economic policies.

Keywords: accelerated depreciation, economic growth, investment-driven, depreciation turning point

JEL Classification: B51, E62, L60

Suggested Citation

Li, Bangxi and Liu, Chong and Shen, Jim Huangnan, Toward a Three-Sectoral Reproduction Model of Fixed Capital Depreciation and Investment-Driven Economic Growth: Theory and Policy Simulations from Chinese Input-Output Data (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3679853 or http://dx.doi.org/10.2139/ssrn.3679853

Bangxi Li (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

Chong Liu

affiliation not provided to SSRN

Jim Huangnan Shen

School of Management, Fudan University ( email )

Shanghai
China

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Core China Research Center, School of Economics and Business, University of Navarra ( email )

Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain

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