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

We propose a tax-adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the United States in the early 2000s. We find that investment responds moderately to tax incentives, but allowing for heterogeneity reveals that intangible-intensive firms respond m...

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Bibliographic Details
Published in:Southern economic journal 2017-04, Vol.83 (4), p.972-992
Main Authors: Chen, Sophia, Dauchy, Estelle P.
Format: Article
Language:English
Subjects:
Assets
Companies
Depreciation
E01
Economic models
G31
H25
Heterogeneity
Intangible assets
Investment policy
Investments
Tax incentives
Taxation
United States
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Summary:We propose a tax-adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the United States in the early 2000s. We find that investment responds moderately to tax incentives, but allowing for heterogeneity reveals that intangible-intensive firms respond more than physical-intensive firms and that this difference is accentuated among large firms. Accounting for intangible assets increases the estimated total investment response from 3.7 to 14.3% of aggregate investment in 2000 among the largest 500 firms. Our results suggest that understanding the behavior of large and intangible-intensive firms matters for investment policy.
ISSN:0038-4038
2325-8012
DOI:10.1002/soej.12203