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
Date Written: July 1, 2020
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
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