Incentive effects of bonus depreciation

Hulse, David S.; Livingstone, Jane R.

doi:10.1016/j.jaccpubpol.2010.06.008

Cited by 23 publications

(19 citation statements)

References 28 publications

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“…Several empirical studies analyze whether extended depreciation possibilities help to maintain investment levels. Hulse and Livingstone (2010) use 1990-2006 Compustat data to attempt to establish whether the level of investment was actually higher than expected in 2002 and 2003 in the USA. They find little effect.…”

Section: Does Flexibility In Tax Depreciation Stimulate Investments?mentioning

confidence: 99%

“…Our sample consists of 869 firm-years (318 firms). 7 Prior studies that test the impact of bonus depreciation on investment levels (House & Shapiro, 2008;Hulse & Livingstone, 2010) simply use firms' total investment without taking in account that many assets do not qualify for bonus depreciation. We have the luxury to be able to distinguish between assets that qualify for DTD and assets that do not qualify, and use this distinction in our hypothesis tests: we test whether investments in DTD-assets are unexpectedly high.…”

Section: Does Discretionary Depreciation Stimulate Investments?mentioning

confidence: 99%

“…We control for three sets of factors that could affect firms' investment level. First, we control for variables that prior studies have shown to influence investment levels (Hulse & Livingstone, 2010;Richardson, 2006;Shin & Kim, 2002). Second, to determine whether making DTD-investments is more beneficial for some firms than for others, and whether firms that do make such investments also have higher overall levels of investment, we control for the impact of a possible self-selection bias on the results by using the Heckman two step procedure (Heckman, 1976).…”

Section: Does Discretionary Depreciation Stimulate Investments?mentioning

confidence: 99%

“…Second, we explicitly investigate the possible crowding out effects. Previous studies on the effectiveness of bonus depreciation have focused on the overall effects on investment at either the level of the firm (Hulse & Livingstone, 2010) or at more macro levels (House & Shapiro, 2008), the only exception being, to our knowledge, Huston (2010) who hand-collected data on the nature of the assets for a sample of 104 firms. Our data, like that of Huston, include investments in all assets together with a distinction whether the assets qualified for DTD.…”

Section: Introductionmentioning

confidence: 99%

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Investment Decisions and Depreciation Choices under a Discretionary Tax Depreciation Rule

Wielhouwer

Wiersma

2017

European Accounting Review

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Prior studies have shown limited impact of the US bonus depreciation rules on firm investments during economic downturns. In this article we study the effects of a set of more flexible rulesdiscretionary tax depreciation (DTD)-introduced in the Netherlands during the 2009-2011 economic crisis. Our simulation results show DTD, which allows firms to accelerate and also to postpone depreciation, to be much more effective than bonus depreciation in reducing the expected value of tax payments, especially in crisis periods. Using a sample of 325 clients of a single office of a Dutch accounting firm, we show that DTD has led to higher investments in assets qualifying for discretionary depreciation for firms that faced the highest marginal tax rate. For other firms, the additional investments crowd out investments in assets that do not qualify for DTD. Our analysis on the actual depreciation choices reveals that firms postpone depreciation when facing losses or loss carry forwards, or to smooth taxable income under the progressive tax system. Our results suggest that a fiscal policy that permits firms to postpone depreciation, as well as to accelerate, may stimulate investment.

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Section: Does Flexibility In Tax Depreciation Stimulate Investments?mentioning

confidence: 99%

Section: Does Discretionary Depreciation Stimulate Investments?mentioning

confidence: 99%

Section: Does Discretionary Depreciation Stimulate Investments?mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Investment Decisions and Depreciation Choices under a Discretionary Tax Depreciation Rule

Wielhouwer

Wiersma

2017

European Accounting Review

View full text Add to dashboard Cite

show abstract

“…Changes in tax provisions often coincide with other changes in the tax law which also can inuence investment behavior. Due to the coincidence of dierent changes in the tax law, the impact of a single tax provision should be hard to measure (see for instance Hulse and Livingstone (2010) or Black et al (2010)). …”

mentioning

confidence: 99%