MACHINERY REPLACEMENT, MULTIPLE OPTIMA, AND THE 1986 TAX REFORM ACT

The 1986 Tax Reform Act established a first year $10,000 expensing option and, for most farm equipment, a 7-year depreciation schedule. Under a profit maximization criterion, these tax law features can lead to multiple optima dependent upon discount and marginal tax rates. For example, the economically efficient time to reinvest under a 2 percent after tax discount rate is at 4, 8, and 30 years for the grower in a 33 percent tax bracket. Thus, the profit maximization behavioral rule needs to be supplemented with knowledge about a farmer's objectives in order to select the "correct" optimal reinvestment interval.


Issue Date:
1988-07
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/29706
Published in:
Southern Journal of Agricultural Economics, Volume 20, Number 1
Page range:
179-187
Total Pages:
9




 Record created 2017-04-01, last modified 2017-08-24

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