The purpose of this article is to show that the scheme of investment allowances outlined below would be preferable to the present system of special depreciation allowances as a means of encouraging investment by primary producers, especially investment by low-income farmers. The need for increased primary production for balance of payments reasons is assumed and increased investment is the major means of bringing this about. (1) The main determinant of the ability of farmers to invest is the excess of their disposable incomes over the costs of maintaining a required standard of life. (2) The effectiveness of the above schemes depends largely upon the extent to which they increase these surpluses. The empirical studies to date suggest that special depreciation allowances have not been very effective in encouraging investment in primary production, especially by low-income farmers. (3) Furthermore, it appears that low-income farmers are not always aware of the existence of special depreciation allowances. (4)Their effectiveness is even further reduced by this ignorance. The article is in four sections. Section 1 contains a description of special depreciation allowances and of the proposed scheme of investment allowances. In the remaining sections the impact of both schemes on investment is analysed for different situations, and the relative merits of the two schemes are assessed.


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