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Finance and Economics Discussion Series: Inflation, Taxes, and the Durability of Capital

by Darrel Cohen
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Current price ₹1,004.00
Original price ₹1,446.00
Original price ₹1,446.00
Original price ₹1,446.00
(-31%)
₹1,004.00
Current price ₹1,004.00

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Book cover type: Paperback
  • ISBN13: 9781288721719
  • Binding: Paperback
  • Subject: N/A
  • Publisher: Bibliogov
  • Publisher Imprint: Bibliogov
  • Publication Date:
  • Pages: 24
  • Original Price: USD 14.75
  • Language: English
  • Edition: N/A
  • Item Weight: 64 grams
  • BISAC Subject(s): General

Auerbach (1979, 1981) has demonstrated that inflation can lead to large inter-asset distortions, with the negative effects of higher inflation unambiguously declining with asset life. We show that this is true only if depreciation is treated as geometric for tax purposes. When depreciation is straightline, higher inflation can have the opposite effect, discouraging investment in long-lived assets. Since our current system can be thought of as a mixture of straightline and geometric, the sign of the inter-asset distortion is indeterminate. We show that under current U.S. tax rules, the "straightline" and "geometric" effects approximately cancel for equipment, causing almost no inter-asset distortions. For structures, inflation clearly causes substitution into long-lived assets.

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