Depreciation rules and small business longevity

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -When a small business purchases a capital asset, its cost for tax purposes is spread over the useful life of the asset through the process of depreciation. It has become common in the USA for policy makers to enhance depreciation rules in an effort to increase business investment in a less-costly manner than across-the-board marginal tax rate cuts. Indeed, short-term depreciation policies are often billed by policy makers as a way to save America's small businesses. However, little is known about the actual effects of depreciation policies on small business activity. This paper aims to discuss these issues. Design/methodology/approach -In this initial attempt to test the political claims regarding the importance of depreciation rules, the paper uses a 12-year panel of tax returns for Schedule C sole proprietors to empirically examine whether more generous depreciation policies influence small business activity at the extensive margin. Specifically, the paper estimates a series of multivariate models to explain sole proprietors' decisions to remain in business as functions of their financial, demographic, and tax situations, including measures of the present discounted value (PDV) of a stream of tax deductions for depreciated capital under various rule structures. Findings -Throughout the analysis, the authors are unable to find evidence that favorable depreciation rules lead to greater rates of entrepreneurial longevity among Schedule C sole proprietors. Originality/value -Discrete choice results suggest that increases in the PDV of tax reductions from depreciation (e.g. depreciating the value earlier in the recovery period) might actually lead to higher probabilities of small business exit, while survival analysis finds no clear influence of depreciation on spells of small business activity.

An analysis of tax benefits by race and ethnicity for farm households

“…The benefits of these business tax benefits are largely limited to farm households with positive income and have been linked to increased business survival and growth (Bruce et al, 2014;Teal & Stevens, 2023;Williamson & Stutzman, 2016). Because of this, there may be implications for these business tax benefits that largely accrue to White and Asian farm households and differential effects on farm growth may be explored in future research.…”

“…Studies have found that lower tax rates resulting from tax benefits to self-employment income can increase business growth (Carroll et al, 2001) and impact the allocation of labor between wage and self-employment activities (Bruce, 2000). Other studies have found that tax benefits resulting from accelerated depreciation have been linked to increased business survival (Bruce et al, 2014) and increased farm investment (Williamson & Stutzman, 2016).…”

The entrepreneurship-unemployment nexus in Croatia

“…3. See Alba-Ramirez (1994) regarding the importance of entrepreneurial and managerial skills required; Johansson (2000), Hurst and Lusardi (2004), and Klapper and Love (2011), among others, discuss the liquidity constraints faced by entrepreneurs; and Parker and Robson (2004), Bruce and Mohsin (2006), Gurley-Calvez and Bruce (2013), Bruce, Deskins and Gurley-Calvez (2014), Bruce, Rork and Wagner (2014), and Koellinger and Minniti (2009) highlight the relevance of governmental safety nets such as unemployment insurance along with tax implications as factors.…”