THE EFFECTS OF TAX POLICIES ON INVESTMENT 

IN MACROECONOMETRIC MODELS: FULL MODEL SIMULATIONS 

Robert S. Chirinko and Robert Eisner 

Northwestern University 

OTA Paper 46 January 1981 

OTA Papers are circulated so that the preliminary findings 

of tax research conducted by staff members and others associated 

with the Office of Tax Analysis may reach a wider audience. The 

views expressed are those of the author, and do not reflect 

Treasury policy. Comments are invited, but OTA Papers should not 

be quoted without permission from the authors. Managing editors 

are Michael Kaufman and Gary Robbins. 

Office of Tax Analysis 

U.S. Treasury Department, Room 1116 

Washington, D.C. 20220 

Issued: January 1981 
-iCONTENTS 

Page 

1. Introduction .................................................... 1 

2 . Outline of the Simulations ...................................... 3 

Increasing the investment tax credit ......................... 3 

Increasing the investment tax credit with compensating 

increases in personal income taxes ....................... 4 

Conable-Jones. 10-5-3 ........................................ 4 

Increase in equipment tax credit equivalent to 10-5-3 ........ 6 

Decrease in corporate tax rate equivalent to 10-5-3 .......... 7 

Office of Tax Analysis Alternative ........................... 8 

3 . The Findings .................................................... 9 

Comparison of Full Model Simulations with Phase I1 Results 

with Investment Equations Alone ......................... 9 

Full Model Simulations. Equipment. Structures and Housing .... 12 

Variables Other than Investment .............................. 16 

Net Federal Budget Surplus ................................... 17 

Total Fixed Investment .............................. i........18 

Summary ...................................................... 

List of Tables ...................................................... 

Tables .............................................................. 

Glossary ............................................................ 

References .......................................................... 

Appendix A: A Detailed Look at MPS Results Under Different 

Monetary Regimes ............................................. 

Appendix B: Estimated Increases in Tax Depreciation Charges. 

Corporate and Noncorporate 10-5-3 and OTA Alternative 

Compared ..................................................... 

Appendix ck: Full Model Simulations. Percent Changes from Baseline. 

Fourth Quarters of Each Year. Investment in Equipment. 

Structures and Housing ....................................... . Appendix Dk: Rates of Depreciation and Investment Credit and Tax 

Lives ........................................................ 

18 

27 

28-92 

93 

94-95 

96-100 

101 

102-113 

114-126 

Appendix P:Present Value Equivalent Calculations ...................127-129 

Appendix Fk: Simulation Input by Model .............................. 130-140 

*Available on request to Office of Tax Analysis . 
-iiACKNOWLEDGEMENTS 

The work underlying this report has been done under contract with 

the U.S. Department of the Treasury. It was made possible by data, 

documentation, computations, and counsel made available by the models 

under consideration -- BEA, Chase, DRI, Michigan, MPS and Wharton - and assistance from personnel of the Office of T& Analysis of the 

Treasury. The authors alone, however, are responsible for its contents. 

Individuals with the various models to whom we are particularly 

indebted include the following. 

-BEA: George R. Green, Albert A. Hirsch and Lincoln Anderson.

CHASE: Lawrence Chimerine, Leon Taub, Lea Tyler, Valerie Amerkhail 

and Hilarie Lieb. 

-DRI: Allen Sinai, John Lisi and Otto Eckstein.

MICBIGAN: Saul H. Hymans and Joan Crary 

-MPS: Gerald Enzler, Steve Thurman, Albert K. Ando, Doug Battenberg and 

Marta Johnson. 

WHARTON: R. Jeffery Green, Lawrence R. Klein, Ed Hill and Stephen R. King.

Larry Dildine of the Office of Tax Analysis has been of enormous 

and repeated assistance with data and details of depreciation and investment tax credit practices, historical and proposed. We have also 

benefitted from suggestions, assistance and encouragement from Ralph B. 

Bristol, Seymour Fiekowski, Harvey Galper, Thomas H. Rosen, Emil M. Sunley, 

and other participants in Office of Tax Analysis seminars at which we have 

presented findings. And we are indebted to Robert Kilpatrick of the 

Office of Management and Budget, Douglas Lee, formerly at the Joint 

Economic Committee (and now with DR'I), and David McClain, formerly of the 

Council of Economic Advisers and now of Boston University. 
-iiiFinally, we have had much assistance from many working with us at 

Northwestern University: Steven Bender, Joanne Butler, Jon Frye, Bruce 

Meyer, Paul Peiper, Steve Sheffey, and Emily Simons. 

And as ever, we have an enormous debt of gratitude to Molly Fabian 

who has accomplished a tremendous job of tabular presentation, typing and 

final assembling with her usual high efficiency and good cheer. 
12/22/80 

f 

. 

The Effects of Tax Policies on Investment 

in Macroeconometric Models : Full Model Simulations 

Robert S. Chirinko 

and 

Robert Eisner 

. -

1. Introduction 

In Phase I we examined the structures of the investment equations 

in the BEA, Chase, DRI, Michigan, MPS and Wharton models. We noted that 

estimated effects of altering investment tax parameters varied widely across 

the models, influenced critically by the varying specifications. 

In our Phase I1 paper, we reported estimates of the.origina1 investment equations as well as our preferred revised equations. We noted that 

results in the original equations differed particularly as a consequence of 

differences in the equipment equations in implicit or explicit values of 0, 

the elasticity of capital with respect to its rental price. Our preferred. 

revised equations, eliminating the dividend or earnings-stock-price ratio . 

to attain a purer measure of a cost of capital variable, splitting output 

and rental price of capital intD separate variables in DRI, and removing 

the homogeneity constraint in MPS, brought drastic reductions in the high 

simulated effects of tax parameters in the original models. Dealing only 

with the investnent equations, without feedback from the rest of the model, 

the mean results of the original equations suggested that each dollar 

-11 A slightly abridged form of the Phase I and Phase 11 reports is available 

as "The Effects of Tax Parameters in the Investment Equations of Macroeconomic 

Economerric Models, " OTA Paper 47. 
-2-

of tax loss from increases in investment credits for both equipment and 

structures would result in about 71 cents of added investment. Our revised 

equations offered a comparable mean figure of only 40 cents of added investment for each dollar of tax loss. 

In Phase 111, we turn to full model simulations. We note and 

compare the effects of specific investment tax "incentives" in the six 

models. We compare results of simulations with the original 

investment equations and with the substitute, revised equations that we 

have estimated with the model data. We thus report upon some 

72 sets of results: six different sets of tax measures for each of two 

sets of investment equations in each of six models? Working with the 

full models, we are able to capture feedback effects, positive 

and negative, on both the portions of investment on which the incentives are 

focussed and on some other forms of investment and product. 

To avoid problems of forecasting exogenous variables, all simulations are performed for the period from the first quarter of 1973 to the 

present. In each case there is therefore the common,baseline historical 

path. Then, to avoid the cumulative Bffect of errors over time, 

which could drive the models off course, a "residual feedback" technique 

5s applied. The errors in the baseline equations for each quarter are added 

to the endogenous variables in the various simulations. Thus, the simulation 

paths are directly comparable with history. 

Government expenditures for gaods and services and rateg of 

transfer payments are adjusted for changes in price levels resulting from 

the simulations so as to be unaffected in real terms, Na exogenous changes 

in monetary policy were introduced in connection:with the simulations. This 

turns out to imply sometimes different monetary responses in the various 

models, however, as we shall note. 

'Indeed we include twelve more simulations for MPS with MI instead of unborrowed 

reserves as the exogenous monetary parameter held at baseline values. 
-3-

2, Outline of the Simulations 

The six simulations were as follows: 

1) Increasing the investment tax credit. The equipment tax credit 

was set at double its historical rate for each of the quarters P 

from 19.73-Ii on, For models using the statutory rate, this meant 

that the 7 percent equipment credit became 14 percent for 1973 and 

1974 and the 10 percent credit became 20 percent for years from 

1975 on. In addition, a new structures credit was introduced 

equal to the historical equipment credit. Thus, in symbols, with 

k' and k' designating the equipment and structures credits in our 

e S 

simulations and ke the existing equipment credit, k' = 2ke and 

e 

k: = ke. 

It is important to note, although the models do not, 

that over the period of the simulations the investment tax 

credit, ostensibly for equipment, has actually been enjoyed 

by between 50 and 60 percent of investment classified as 

structures in the national income accounts and in the models. 

This is particularly true in utilities and communications, 

where almost all investment in structures qualified for the 

investment tax credit. In explicitly adding to the structures 

credit in this simulation an amount equal to the addition to 

the equipment tax credit, we examine the impact of a more 

general investment tax credit applied to plant and equipment. 

. By specifying that the equipment tax credit be doubled 

over its historical values in each quarter and that the 

structures credit be increased by an equal amount we endeavor to 

secure comparability among models that incorporate an effective 

tax credit (which recognizes that not all of equipment has in 

fact been eligible in whole or in part for the credit) and models which 

have incorporated rhe statutory rate in the parameters of their 

equations. 
-

-4-

2) Increase the investment tax credit, as in the first simulation,' 

but with compensating lump sum increases in personal income taxes. 

This ex ante balanced budget tax credit simulation is thus intended 

to isolate effects of an investment tax credit per se from the 

general effects of any tax cut. We furnished each model with a 

quarterly series of direct changes in business tax liabilities 

stemming from the increase in investment tax credit with 

instructions to add these amounts to the equation for personal 

tax payments. 

3) Conable- Jones, "10-5 -3 'I accelerat ion of depreciation. Estimates 

of existing length of tax depreciation lives for equipment and 

for structures were obtained fromLarry L. Dildine of the Office 

of Tax Analysis. Estimates of equivalent tax depreciation lives 

under 10-5-3 were similarly obtained. These were calculated as 

the tax lives for double-rate declining balance depreciation 

which would give the same present value at a 12 percent rate 

of discount as the depreciation flows specified in 10-5-3. 

In view of the phase-in provision of 10-5-3, this entailed 

decreasing lives for each of the first five years, from 1973 to 

1977 in our simulations. 

Since the models had used tax depreciation lives which 

in some cases differed from the Office of Tax Analysis 

estimates of lives, as well as from each other, in order to 

incorporate equal reductions in tax lives, separate series are 

furnished to each model to make their 10-5-3 tax lives differ 

from their existing tax lives by the same proportion as the 

OTA estimates. 
-5 -

c 

In addition, it was necessary to furnish series to each 

model indicating the quarter-by-quarter increases in 

tax depreciation allowances, corporate and business noncorporate, brought on by 10-5-3. This was accomplished on 

the basis of the stipulated phase-in and equilibrium 

depreciation rates of 10-5-3 along with the tax lives estimated 

by the OTA under existing law. We developed a rather complicated 

algorithm which enabled us to duplicate precisely the differences 

in depreciation allowances estimated by the Treasury for the 

phase-in period and to come within one or two percent of those 

estimates for the years thereafter. The differences in 

depreciation rates used to match the Treasury estimates of 

future depreciation changes were applied to the historical 

investment streams to generate differences in tax depreciation 

charges over the period of the simulations. 

These series of differences, both corporate and business noncorporate (proprietors, nonresidential) were furnished to 

each of the models with further instructions to insure that 

income before taxes and the capital consumption adjustments 

were altered accordingly. (Corporate profits before taxes 

without adjustment are reduced by the increase in depreciation 

allowances but an equal algebraic increase in the capital 

consumption adjustment leaves corporate profits before taxes with 

adjustment unchanged. Corporate profits taxes are then reduced by 

application of the models' corporate tax rates to the change in 

profits before taxes without adjustment. The models were instructed 

to reduce personal income tax liabilities by applying the corporate 

tax rate to the change in taxable persenal income due to changes 

%. 

in tax depreciation allowances of non-corporate businesses on the 

non-residential property. ) 
-6-

Since 10-5-3 also offers some liberalization of the rules 

for application of the investment tax credit, the models were 

instructed to incorporate the resulting increases in the 

effective credit. These were estimated to be 0.8 percent for 

equipment and 0.2 percent for structures (the national income 

accounting category of structures used in the models which 

includes, as we have noted, a major component of equipment). 

The models were therefore instructed to add this 0.8 percent 

to their equipment tax credit and change the implicit or 

explicit credit for structures from zero to 0.2 percent. 

4) An increase in the investment tax credit for equipment which 

would offer tax reductions of equal present value to those 

provided by 10-5-3. With its emphasis on accelerated depreciation, 

3.0-5-3 offers a stream of tax reductions which starts small but 

rapidly grows large. This pattern for 10-5-3 is sharpened by 

its phase-in provisions. The 10-5-3 proposal also offers very 

substantial tax advantages to structures. The investment tax 

credit in its current form offers benefits to the business taxpayer, 

and losses to the Treasury, up front, varying essentially with the 

rate of business investment in equipment. This simulation makes 

possible comparison of 10-5-3 and the investment tax credit with 

respect to magnitude and timing of tax reductions and effects, 

and on the split between equipment and structures. 

The present value equivalents were calculated on the basis of 

actual investment and Treasury bill rates over the period from 1973 

to the present and a 12 percent discount rate and projected investment streams derived from the Wharton Annual Hodel for the years 

from 1980 on. The three month Treasury bill rates were applied 
-7 -

successively for the 1973-1979 perlod and the 12 percent rate 

thereafter to secure increasingly long-term rates of discount 

from the beginning of 1973 to each of the future quarters over 

which tax payments would be affected by, alternatively, 10-5-3 

and an increase in the investment tax credit for equipment. 

The calculations indicated that the present value equivalent 

increase in the equipment tax credit equal to the tax reductions 

in 10-5-3 was 16.264 percentage points.' The models were therefore instructed to increase their investment tax credit for 

equipment by this constant amount during the simulation period, 

thus raising the statutory rate of credit from 7 to 23.264 percent 

for 1973 and 1974 and from IO to 26.264 percent for the years 

1975 through 1979. 

5) A decrease in the corporate tax rate which would lower corporate 

income taxes by an amount whose present value was equal to the 

present value of the total tax reductions, corporate and noncorporate provided for by 10-5-3. The calculations here were 

analogous to those for the present value equivalent increase in 

investment tax credit of simulation 4. The present value 

equivalent reduction in the corporate tax rate was found to 

be 9.815 percentage points? Each of the models was instructed 

to reduce the corporate income tax rate by this amount over the 

simulation period. 

'Applying 12 percent discount rates to projected investment and prof its 

for the 40 quarters beginning in 1980-1 indicates that present valuc 

equivalents of 10-5-3 would currently be a 17.2 percentage point increase in the equipment tax credit or a 10.6 percentage point decrease 

in the corporate income tax rate. Comparable equivalents for the OTA 

alternative described below are plus 5.4 percentage points for the 

equipment tax credit and minus 3.6 percentage points for the 

corporate tax rate. 
* 

-8-

6) An alternative depreciation proposal under consideration 

by the Treasury. Relevant parameters and series for 

this, analogous to those of 10-5-3, were furnished to 

each of the models on the basis again of information from 

Larry L. Dildine of the Office of Tax Analysis and the 

algorithm which we developed for generating differences 

in depreciation flows. Each model was furnished 

new values of tax lives for equipment and structures which in 

this case involved no phase-in but were again calculated 

so that the changes from existing tax lives in the models 

would be proportionate to the changes from existing tax 

lives estimated by the Office of Tax Analysis. The Treasury 

proposal under consideration entails effective increases 

in the investment tax credit of 1.2 percent for equipment 

and 0.6 percent for structures. The models were instructed 

to increase their explicit and implicit investment tax 

credits for equipment and structures by these amounts. 

Instructions analogous to those for the 10-5-3 simulation 3 

were again offered for using the changes in depreciation 

allowances to alter corporate profits after taxes, taxable 

personal income and capital consumption adjustments. 
ri 

-9-

3. The Findings 

Comparison of Full Model Simulations and Phase I1 Results with 

Investment Equations Alone (Table 1) 

Full model simulations by and large underscore the effects of tax 

parameters in the investment equations indicated in PhaseII. Table 1 (1.1 

through 1.6) repor& results of the comparisons of effects in 1977-IV Of 

having doubled the equipment tax credit and added a structures credit equal to the 

historic equipment credit in the investment equation simulations and in full 

model simulations one and two. These latter involve, respectively, no 

personal tax offset and a personal tax offset equal to the static reduction in taxes resulting from the increased investment tax credit. 

In all of the models except BEA there is some positive feedback 

to equipment investment in the full model simulations with no personal 

tax offset. The general variety of results remains, however. 

Thus Michigan was low, with equipment investment increasing 

by only 1.6 percent in the full model simulation, as against1.5 percenc 

in the investment equations alone. DRI and MPS were again high. In the 

case of DRI the single equation result of +14.2 percent became C15.7 

percent in the full model simulation. 

While monetary sectors differ, perhaps significantly, in the 

various models, we have been able to attain a certain common constraint 

by maintaining unborrowed reserves at baseline values in the Chase, DRI, 

MPS and Wharton models. In the BEA and Michigan models monetary reserves 

seemed generally endogenous and it did not appear feasible to maintain 

unborrowed reserves or any similar parameter fixed. In the case of 

MPS we became aware of considerably different results when Ml, rather 

than unborrowed reserves,was held at baseline values, as indicated in 

our special discussion of the MPS model.' We have, in our comparisons, 

generally presented the MPS simulations with unborrowed reserves at baseline values but should caution that a sharp cycle became apparent 

'See Appendix A. 
-10-

in some of these results, as a boom in the fifth year turned to a pracipitous 

decline by the seventh year. 

In any event, the IPS full model simulation of the increased 

investment credit showed a 19.7 percent increase in equipment investment t 

by the end of the fifth year, that is by 1977-IV, thus even higher than 

DRI. With Ml held at baseline values, however, the MPS result was somewhat 

less, 14.4 percent above baseline. (See Tables 1.5 and 1*5-14l.-) 

Introduction of a personal tax offset to the decreased taxes 

resulting directly from higher investment tax credits leads generally 

to somewhat lesser stimulatory effects on equipment investment but the 

differences are less than what might have been expected. In the MPS 

model with Mt at baseline values, investment actually increased more when 

personal taxes were increased. All of this suggests more or less powerful 

monetary feedback in the vzrious models. rates tend to rise less 

or decline, ceteris paribus, when taxes are higher or the budget deficit is 

less. 

Our preferred "C-E" equations generally, but not always, showed 

- i 

distinctly lesser effects on equipment investment in the full model 

simulations, as they did in the investment equations alone. The notable 

exception was Chase, where our 3.1 percent of baseline increase in the 

investment equation itself became 7.6 percent with no personal tax offset 

and 4.5 percent with the offset, in both cases larger than the estimates 

from the original equations. This, however, related to a special issue 

in dealing with variables reflectlng stock prices, profits after-tax and 

profits-stock price ratio variables. In the single investment equations 

these variables have been held at their baseline values. In the full 

model simulations they were allowed co vary and their variation added 

considerably to investment. 
-- 

-11-

Looking at the results of simulation 1 in general, with a reduction 

in taxes amounting to 10 percent of investment by 1977-ZV, five years after 

initiation of the stimulus and after three years of the 10 percent increase, 

the full model simulations using the original equations showed increases in 

equipment investment amounting to only 7.9 percent of baseline for BEA, 

6.2 percent for Chase, 1.6 percent for Michigan and 8.0 percent for Wharton. 

The outliers were DRI at 15.7 percent and MPS at 19.7 percent. 

Use of the C-E equations resulted generally in lesser effects,, 

7.8 percent in BEA, 7.6 percent in Chase, only 3.9 percent now in DRI, 

1.8 percent for Michigan and 3.3 percent for Wharton. The MPS result with 

unborrowed resenres at baseline values was still 11.8 percent,but with 

Ml at baseline values the MPS result was 4.8 percent. It would appear 

highly questionable, therefore, whether 10 percent increases in the 

cc 

investment credit generate anywhere near 10 percent increase in investment. 

/1 

In the case of structures, we will recall, none of the models 

showed tax parameters as particularly potent in the investment equations 

themselves. This pattern was maintained in the full model simulations. 

Thus, with no personal tax offset, institution of a 7 and then 10 percent 

investment tax credit raised structures investment in the full model 

simulations with no personal tax offset by only 2.6 percent in the BFA 

model, 8.9 percent in the Chase model, 7.7 percent in the DRI model, 

.2 percent in the Michigan model (where tax parameters did not enter the 

structures investment equations at all) and 8.0 percent in the Wharton model 

(where equipment and structures investment were jointly determined). 

Only MPS with unborrowed reserves at baseline values was again an outlier;--

with a 15.percent effect, contrasting with an 8.1 percent stimulus when 

M1 rather than unborrowed reserves was the monetary parameter held at baseline 

values. 
-12-

Substitution of the C-E equations did not generally make a great deal 

of difference in structures, except in the Wharton model where structures and 

equipment, again, were determined jointly. 

Full Model Simulations, Equipment, Structures and Housing, and Total Fixed 

Investment (tables 2 and 3) 

Effects of the various changes in tax parameters on investment in 

equipment, structures and housing at the ends of the first, third, fifth and 

seventh years, may be noted in Table 2, parts A through D. Tables 3.1 through 

3.6 show the amounts and timing of the peaks of response as well as the 

departures from baseline in quarter 28 (1979-IV), the end of our simulation 

period, for investment in equipment, structures and housing and for capital 

stocks where those data are available. 

We may note first that for investment in equipment and in structures tax 

stimuli, except in the case of 10-5-3, generally resulted in a surge in investment which reached a peak some time before the end of the simulation period, 

frequently as early as the third or fourth year. This was presumably accountable to distributed lag coefficients of which the effects diminished as new 

equilibrium capital-output ratios were approached. There should have been, 

and probably were, negative feedbacks in a number of cases stemming from 

real resource constraints and/or monetary constraints. These feedbacks may, 

or should, have been proving for the real resource constraints. 

For in an appropriately formulated model, investment can increase rapidly 

as long as there are idle resources to be used in producing additional capital 

goods. As full capacity is approached, investment in equipment and structures 

must compete more streneously against other investment and other production. 

Tighter credit or higher interest rates may then reflect business bidding for 

scarce resources. A fully accommodative monetary autfiority would under such 

circumstances only contribute to added inflation without making additional 

resources available for nonresidential fixed investment. 
-13-

In the BFA model, we note then, peaks in investment in equipment 

with the original equations are reached in the twelfth quarter in 

simulations 1, 4, 5 and 6 and in the fourteenth quarter in simulation 2. 

In each case investment is distinctly less in 1979-IV than at the peak. 

Peaks are on occasion somewhat later with the C-E equations. 

In all of the models except DRI and Wharton, peaks in the 

stimulatory effects on equipment and structures investment were generally 

reached before the end of the simulations, except in the case of 10-5-3. 

In the DRI model the generally buoyant responses may have kept investment 

booms in some instances going longer. 

The later peaks in 10-5-3, where they occur at all in the 

simulation period, are largely if not entirely accountable to its phase-in 

properties. Only in the fifth year did tax parameters take on their full 

stimulatory values in 10-5-3, and further lags in responses could well 

result in simulations showing investment in equipment and structures still 

growing at the end of the twenty-eighth quarter. 

The effects of 10-5-3 on investment in equipment in '. 

particular were initially very modest. Thus, while the present value 

equivalent of 10-5-3 would be3an increase in the investment credit 

for equipment of some 16.254 percentage points, the increases 

in equipment investment as a percentage of baseline, using the original 

investment equations, were only .8 percent and 2.9 percent at the end of 

each of the first two years in BEA, .4 percent and 1.4 percent in the Chase 

model, .9 percent and 5.1 percent in DRI, 2.3 percent and 3.2 percent in 

Michigan, .8 percent and 2.2 percent in MPS, and .8 percent and 1.9 percent 

1

in Wharton. The effects on structures investment are somewhat speedier, 

as well as larger, because 10-5-3 provides such relatively huge 

'A tabulation of year-by-year effects on investment indicated by each of 

the models is available on request to the Office of Tax Analysis. 
-14-

reductions in depreciation tax lives for Structures. 

It should be observed that none of the models takes into account 

the likelihood of adverse effects on current investment from intertemporal 

substitution induced by the phase-in process in 10-5-3. Investment is 

slow because the tax advantages are small at first. But since 10-5-3 

provides greater tax advantages for investing at the end of the five-year 

phase-in than investing at the beginning, rational business decisionmakers might well decide actually to invest less in the phase-in period, 

delaying their investment until they could receive maximum tax advantage. 

Stimuli to some kinds of investment may well cause reduced 

investment elsewhere, given generally scarce resources, or complementarity 

among capital goods or generalized effects of a buoyant economy may tend 

to raise various rates of investment together. Simulation 4, involving 

a 16.264 Increase in the investment credit for equipment,reveals the 

disparate results I the various models can generate. 

-

The BEA model indicates substantial reductions in investment in 

structures as equipment investment soars. Similarly in Ikarton, where a specific 

equation allocates total investment between equipment and structures largely 

on the basis of relative cost of equipment and structures, reflecting 

differential tax credits, investment in structures declines precipitously. 

In the case of Chase, however, structures investment rises along with, 

albeit less than, equipment investment. In the DRI model, .. 

there is a major,if short-lived,boom in structures investment with the 

large increase in the equipment tax credit. Similarly in MPS there are 

large positive effects on structures investment. In Michigan, once more, 

structures investment is essentially unaffected by tax parameters. 
-15-

In principle, it would be desirable to explore the effects on 

all other investment of tax stimuli to one particular type of investment. 

The models do permit analysis of housing investment. .Here again the 

effects are mixed. 

In the BEA model positive effects on investment in nonresidential 

equipment and structures are matched by substantial negative effects on 

investment in housing. There are also negative effects in the DRI model 

but effects are minimal in Michigan and Wharton and vary with the monetary 

constraint in MPS. With unborrowed reserves at baseline values MPS generally 

generates somewhat more housing investment as investment in equipment and 

structures rises. With Ml held at baseline values, however, the increased 

budget deficits associated with all of the simula2ions except number 2 

(where there is a personal tax offset to the increase in the investment 

tax credit) apparently causes credit tightness and sharp reductions 

in housing investment. 
-16-

Variables Other Than Investment (Tables 4 and 5) 

Table 4 indicates effects on variables other than investment 

in each of the six simulations for each set of equations in each 

of the six models. Looking at peak percent changes from baseline 

and percent changes from baseline in 1979-IV we find again quite 

varied results in the different models. Employment and expenditures _ -

for GNP, personal consumption and consumer durables generally rise, but not 

always. The exceptions, where they occur, relate to the investment tax 

credit personal tax offset. Here we find declines in employment and 

expenditures in the BEA, Chase and Michigan models using the original 

equations. DRI and MPS, however, show substantial increases, as does 

Wharton. 

In all models except BEA, this simulation of added investment 

tax credits with offsetting personal tax increases results in at least 

slightly lower values 6f the GNP price deflator. In all models except

BEA and DIU, interest rates as measured by the corporate or the utility 

bond rates also decline. 

budget deficit decreases. 

And in this simulation alone the federal 

The other simulations tend more generally to have substantial 

positive effects on employment, GNP and other expenditures and on interest 

rates. The GNP price deflator is relatively little affected. The C-E 

equations tend to show lesser effects than the original equations in the 

DE, MPS and Wharton models. 
-17-

Table 5 summarizes the results for both the other variables and 

various components of investment for quarter 28 (1979-1V). Comparing 

simulations, we may note that the models indicate that reductions in the 

corporate income tax rate have relatively small effects on investment in 

equipment and structures. 

Net Federal Budget Surplus (Table 6) 

Tables 6.1 through 6.6 indicate effects in the firstyninth and 

twenty-eighth quarters,as well as peaks and lows of differences from the 

baseline,for the net federal budget surplus in billions of current dollars. 

None of the models suggests that uncompensated tax cuts to stimulate investment bring in more tax revenues than they lose. The model that minimizes 

the effect on the deficit is DRI. Here with the OTA alternative there is 

actually a trivial reduction in the deficit by the amount of .3 billion 

dollars in the fourth quarter of 1979, in estimates using the original 

equations. In all other cases, except where increases in the investment 

tax credit are offset by increases in personal income taxes, the tax 

incentives increase the deficit. This is true for all models and for 

both the original and C-E equations. 

In most models and simulations the deficit was still rising at 

the end of the simulation period. In DRI the general stimulatory effects 

of the incentives seem to be bringing a turnabout some time before the 

end of the simulation period in all cases except that of the reduction 

in corporate tax rates. The 10-5-3 simulations, of course, generally 

began with small increases in the deficit which, however, increased rapidly. 
-18-

Total Fixed Investment (Table 7) 

Table 7 indicates the yearby-year effects on total fixed 

investment, the sum of housing and nonresidential investment in equipment and structures, for each set of equations in each simulation in each 

model. Very wide variance of results is again immediately apparent. 

With the original equations for 10-5-3, for example, the peaks 

of investment response range from $3.5 billion in the Michigan model 

to $33 billion for DRI. The C-E equations generally result in less 

stimuli to total fixed investment, except in the case of the corporate 

profits tax rate reduction, where only Chase shows any substantial positive 

effect. The 1978-79 downturn in the mean effects of the 16.264 percent 

increase in the investment credit for equipment is an aberration due to 

the explosion of the MPS model using unborrowed reserves at baseline values. 

If the MPS simulation with M1 at baseline values is substituted for 

1978 and 1979, mean figures for effects on total investment are 

higher for the original equations than the C-E equations. 

4. Summary (Tables 8, 9 and 10) 

Comparisons of the effects of investment tax incentives on 

investment, GNP and the federal budget surplus or deficit, as shown in 

the various simulations and equations for each of the models are 

found in Tables 8, 9 and 10. As throughout our analysis, two sets 

of facts stand out. First, results are quite varied, with large 

effects shown in the DRI and MPS models, sensitive to equation specification and monetary assumptions. Second, with these outliers eliminated, 

the models generally show only modest effects of tax parameter changes 

on investment. This is particularly so when simulations are performed 

with our preferred C-E equations. 
-19-

Thus, Table 10 indicates that the static tax losses without 

feedback from simulation 1, adding 10 percent to investment tax credits 

for equipment structures, amounted to $26.4 billion at annual rates 

in the fourth quarter of 1979. This came to 15.5 billion 1972 dollars. 

Only the DRI and MPS models indicated resultant increments to total 

fixed investment of more than this amount in simulations using the 

original model equations. The mean increment of $11.7 billion (Table 8.1) 

was only 76 percent of the direct tax loss. 

The C-E equationsgenerated a mean increment of total fixed investment of $8.7 billion, only 56 percent of the direct tax loss. The difference 

was occasioned by sharply lower estimated effects on investment in the DRI, 

MPS and Wharton models, only partially compensated by higher estimates in 

the BEA and Chase models. 

Increases in the federal budget deficit were, of course, generally 

less than the direct tax loss. But even here the mean increase in the 

deficit, 10.2 billion 1972 dollars, was almost as much as the mean 

simulated increase in total fixed investment with the original equations, 

11.7 billion 1972 dollars. The deficit increase was larger than the 

increase in total fixed investment in the C-E equations, 10.0 billion 

versus 8.7 billion 1972 dollars. 

Interestingly, the models generally showed significant increases 

in total fixed investment, along with decreases in the budget deficit 

in simulation 2, which added a personal tax increase to offset the 

reduced taxes from increases in the investment tax credit. These results 

are shown in Table 8.2. The increases in total fixed investment were 

modest, however, amounting to means of 10.4 billion 1972 dollars with 

the original equations and 7.3 billion 1972 dollars with the C-E equations. 

The reductions in the federal budget deficit were trivial, in the order 

of $2 billion. 
-20-

The 10-5-3 simulation reported in Table 8.3 is dramatic in indicating 

quite large tax losses and increases in the federal deficit in 1979-1V, 

with sharply lesser effects on fixed investment in the BEA, Michigan, 

and Wharton models, but large effects on investment in the DRI and MPS 'c 

models. Chase proved intermediate, with total fixed investment approximately 

t

equal to the increase in the federal budget deficit, but less than the 

static tax loss of 21.0 billion 1972 dollars (35.9 billion current 

dollars). 

The 16.264 percentage points increase in the equipment tax credit of 

simulation 4 leads to increases in 1979-IV equipment in all models except 

MPS using its original equations, where a cyclical downturn develops. 

The amount of the indicated increase varies substantially: Michigan, 

2.6 billion 1972 dollars; Chase, 9.7; BEA, 15.0; Wharton, 18.7; and 

DRI high at 37.1 billion 1972 dollars. The estimates of increments - - -. 

in equipment investment with the C-E equations were much less for DRI, 

only 7.9 billion 1972 dollars, and somewhat less for Wharton, only 

i3.5 billion. 

Using the MPS results stemming from Ml at baseline levels, we 

find the original equations showing a mean increase in equipment 

spending of 12.8 billion as against a mean deficit increase of 17.2 

billion 1972 dollars. The C-E equations, with MPS this time using 

the usual unborrowed reserve constraint, showed a mean increment in 

equipment spending of 9.8 billion as against a mean increase in the 

budget deficit of 15.4 billion 1972 dollars. Increments to total 

fixed investment were no more, as the big increase in the equipment 

tax credit generally left structures and housing investment unaffected 

or slightly less. 
-21-

Table 8.5 indicates modest increases in investment as a consequence 

of the cut of almost 10 percentage points in the corporate tax rate. 

The models, with the exception of Chase, are fairly unanimous in indicating 

increments to investment quite less then increases in the deficit and, in 

all cases, far less than the static loss. The C-E equations do little 

to change the picture stemming from the original equations. 

The OTA alternative shown in Table 8.6 offers relatively modest 

static tax losses, 9.4 billion current dollars and 5.5 billion 1972 

dollars in 1979-1V, but correspondingly small increments to investment. 

These come to mean figures of 5.7 billion 1972 dollars for the original 

equations and 4.7 billion 1972 dollars with the C-E equations. 

The mean increases in federal budget deficits are, respectively, 

5.6 and 5.7 billion 1972 dollars. 

Thus except for special cases of DRI and WS with their original 

equations, investment stimuli do not match static tax losses. They 

certadnly generate nowhere near enough added income to prevent 

substantial increases in federal budget deficits. 

The year-by-year sequencgof fourth quarter results for investment in 

equipment, structures, housing and total fixed investment, with both 

original and C-E equations, are presented in Table 9. They are expressed 

as percentage changes from baseline and the static tax loss as a percent 

of fixed investment is offered for comparison. All figures are based 

on 1972 dollars, with the GNP implicit price deflator used to convert 

tax losses (as well as the net federal budget surplus in other tables) 

to 1972 dollars. 
-22-

Noting first the results of simulation 1 with the seven and then ten 

percent increases in investment tax credits for equipment and Structures 

(Table 9.1), we see that total fixed investment, in simulations with both 

the original equations and the C-E equations, increases less than the 

static tax loss in every year in the BFA, Chase, Michigan and Wharton 

models. Only in the DRI and MPS models does the increase in investment in some years exceed the static tax loss. In the case of DRI, 

these excesses do not appear in the simulations with C-E equations. 

The BEA model does generate some large increases in investment 

in equipment and structures but these are counterbalanced by decreased 

investment in housing. In the DRI case, housing investment is also 

depressed but the overwhelming increases in investment in equipment, 

upwards of 15 percent of baseline in most years with the original 

6 

equations, leaves total fixed investment generally well above the 

static tax loss. 

The models all indicate, with the exception of Michigan, that 

a combination of higher investment tax credits and offsetting personal 

tax increases results in larger investment in equipment and structures , 

although frequently less investment in housing (Table 9.2). It may be observed that the Piichigan model, results of which are frequently outliers, is 

particularly ill equipped to handle investment tax credit changes. 

As we have noted previously, tax parameters do not enter the structures 

equations at all in the Michigan model. Further, corporate tax payments 

are a curious lagged function of the investment tax credit (among other 

variables) such that only a minor fraction of tax credit changes show 

up in changes in tax payments. 
-23-

Results of simulation of 10-5-3, shown in Table 9.3 are roughly 

similar to those of simulation 1, involving increased investment tax 

credits for equipment and structures. Major differences involve the 

phase-in process, so that tax loss and increases in investment are 

less in earlier years with 10-5-3, and the greater stimulus to investment 

in structures stemming from 10-5-3. The DRI results using their original 

equations are very high relative to the other models, particularly for 

equipment. The MPS results here are relatively moderate, however. 

Thus DRI is the only model showing increases in total fixed investment 

greater than tax losses. Indeed all of the others show gains in investment 

far less than tax losses in all years except 1973 and 1974 in the case of 

BEA and 1973 in the case of Michigan, where tax losses were very low 

with 10-5-3. 

Similarly, for simulation 4 involving an increase in the investment tax credit for equipment Of 16.264 percentage points, a present value 

equivalent of 10-5-3, the DRI original equations offer extreme results. 

By the end of 1975, equipment investment has reached a peak of 41.5 percent 

above baseline, and is still 37.6 percent above baseline of the end of 

1979 (Table 9.4). The hugh increase in the equipment tax credit even 

drives up structures investment very substantially in the original DRI 

model but does depress housing investment. 

MPS blows up in this simulation with unborrowed reserves at their 

baseline values, as we have noted earlier. The other models, except 

Michigan, show quite varying but generally substantial investment responses 

in equipment and some positive and some negative responses in structures. 
-24-

The C-E equations again serve mainly to knock down the extreme 

reactions in DRI and MPS and to reduce somewhat the Wharton responses. 

In general, except for simulations with the original DRI equations and MPS, 

the increases in total fixed investment are considerably less than the static 

tax loss in all years in all models. 

The cut in corporate tax rate by some 10 percentage points accomplished 

in simulation 5 (Table 9.5) has a very small effect on investment in all models 

except MPS and, to some extent, Chase. 

Simulation 6, the Office of Tax Analysis alternative involving 

modest acceleration of depreciation and increases in investment tax 

credits, is shown in Table 9.6. As with acceleration of depreciation 

on new acquisitions generally, the OTA alternative implies static tax 

losses beginning small and rising rapidly over the first few years. 

Once more, in all models except DRI and MPS, the increases in investment 

brought on by the increased tax incentive is considerably less than the 

direct tax losses to the Treasury. 

The many tables and numbers we furnish offer more detail than 

most readers can use. Voluminous printouts of the results of some 

84 simulations offer far more data. The most important lesson from all 

of this, however, is one that we suggested early in our study. The 

various models set forth,as the consequences of changes in tax parameters, 

very much the implications of the structural specifications with which 

they began. 

Hence, in the full model simulations reported in Phase 111, as 

with the individual investment equations discussed in Phase I and 11, 

consequences of changes in investment tax parameters depended overwhelmingly 

on how those parameters entered the investment equations. In particular, 
-- 

-25-

where they were tied to cost-of-capital terms which.wereeither specified 

to have large effects or were estimated to have large effects because 

they were tied implicitly or explicitly to other variables favorable 

to investment, changes in tax parameters had large consequences. 

Of all of the models, DRI, as a consequence of these considerations, 

was clearly and consistently extremely high in its predicted effects of 

investment tax stimuli. Our own revised C-E equations, in the case of 

DRI and Some of the other models, tended generally to moderate and 

equalize the implied role of tax parameters in determining investment. 

We have some considerable preference in terms of our own priors 

for our equations yielding generally lower estimates of investment 

effects and confirming our views that none of the changes in tax parameters generally considered or considered in this study is "cost-effective.11 

Sober analysis tends to draw the conclusion that a dollar of direct tax 

loss to the Treasury yields considerably less than a dollar of increased 

investment. 

This said, however, we must acknowledge and indeed affirm that none 

of the major macroeconometric models that we have considered is wellequipped to analyze the effects of changes in tax parameters on investment. 

For,essentially, investment is determined by expectations of the 

future as well as the current situation. Estimates of all equations in 

the models, but investment equations in particular, involve implicit 

if not explicit assumptions as to how expectations of the future change 

with changes in observed data. 

We are thus on very shaky ground -- hardly any ground at all --

when we assume that changes in the cost of capital or other variables 

in some historical period have been associated with changes in expectations 

in the same manner as any historical or hypothetical changes in tax 
-2 6-

parameters are or will be associated with corresponding expectations of 

the future. We have noted this explicitly in connection with the failure 

of any of the models to handle the intertemporal substitution inducement 

to delay investment implicit in the phase-in process of 10-5-3. 

More generally, hoyever, this objection applies to analysis of all of 

the tax parameter changes in all of our simulations. 

The final result of our analysis, for now at least, must then 

be that one can get almost any answer one wants as to the effects of 

tax incentives for investment by making sure that the chosen model has 

specifications appropriate to one's purpose. The six models that we 

have examined give vastly different results. Our analysis of the 

equations and the simulations suggests that where large responses of 

investment to tax stimuli are indicated they hinge upon crucial, 

controversial assumptions. 

To proceed with major acceleration of depreciation or investment credits on the assumption that they will have commensurate 

effects in increasing investment must then rest essentially on faith. 

Faith is indeed sometimes rewarded. But for our part, in this instance, 

we remain agnostic. 
-27-

List of Tables 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

Investment Equations and Full Model Simulations Compared, 

Doubling Investment Credit for Equipment and Adding Credit 

for Structures, Change in Investment 1977-IV, Billions of 

1972 Dollars and Percent of Baseline 

Full Model Simulations, Percent Changes from Baseline, 

Investment in Equiprcent, Structures and Housing, and Total 

Fixed Investment, Mean, Low, High and Range of Models 

Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Full Model Simulations, Percent Changesfrom Baseline at 

Peak and in Quarter 28 (1979-IV), Variables Other than 

Investment 

Full Model Simulations, Absolute Changes from Baseline, 

Quarter 28 (1979-IV), Investment and Other Variables 

Full Model Simulations, Net Federal Budget Surplus, Differences 

from Baseline in Billions of Dollars, Quarters 1, 9 and 28 

and Peaks and Lows 

Full Model Simulations, Fixed Investment, Differences from Baseline 

in Billions of 1972 Dollars, Fourth Quarter of Each Year 

Full Model Simulations, Changes from Baseline, Ouarter 28 (1979-IV), 

Billions of 1972 Dollars, Investment in Equipment, Structures and Hoii-inn, 

Total Fixed Investment, GNP, and Net Federal Budget Surplus 

Full Model Simulations, Percent Changes from Baseline, Fourth Quarter 

of Each Year, Investment in Equipment, Structures, Housing and Total 

Fixed, and Static Tax Loss as Percent of Total Fixed Investment 

Static Tax Losses (Without Feedback), Fourth Ouarter of Each Year 

117 Full Model Simulations, Percent Changes from Baseline, Fourth Quarters 

of Each Year, Investment in Equipment, Structures and Housing 

* Available in Appendix C on request to Office of Tax Analysis. 
-28-

Table 1 Investment Equations and Full Model Simulations Compared, 

Doubling Investment Credit for Equipment and Adding Credit 

for Structures, Change in Investment 1977-1VY Billions of 

1972 Dollars and Percent of Baseline 

(1) (2) (3) (4) (5) (6) 1 

Simulation Equipment Structures 

ki = 2ke; ki = ke Original C-E Original C-E 

Equation Equation Equation Equation a 

1.1 BEA 

Billions of 1972 Dollars 

Invesanent Equation +9.0 +8.0 +1.4 i-1.4 

1. Full Model, No Personal 

Tax Offset 7.2 7.1 1.1 .5 

2. Full Model, with Personal 

Tax Offset 7.2 6.7 1.5 -.0 

Percent of Baseline 

Investment Equation +9.8 +8.6 +3.5 +3.6 

1. Full Model, No Personal 

Tax Offset 7.9 7.8 2.6 1.4 

2. Full Model, with Personal 

Tax Offset 7.8 7.3 3.6 -.0 

1.2 Chase 

Billions of 1972 Dollars 

Investment Equation . +4.3* +2.8* +1.4* +l.3" 

1. Full Model, No Personal 

Tax Offset 5.6 7.0 3.6 3.5 

2. Full Model, with Personal 

Tax Offset 3.4 4.1 2.3 2.3 

Percent of Baseline 

Inves tment Equat ion +4.7* +3.l* +3.4* +3 0 3* 

1. Full Model, No Personal 

Tax Offset 6.2 7.6 8.9 8.7 

2. Full Model, with Personal 

Tax Offset 3.7 4.5 5.8 5.7 

*Stock price, profits after tax, and profits-stock price ratio variables held 

at baseline values. 
-29-

Table 1 Investment Equations and Full Model Simulations Compared, 

Doubling Investment Credit for Equipment and Adding Credit 

for Structures, Change in Investment 1977-IV, Billions of 

1972 Dollars and Percent of Baseline 

(1) (2) (3) (4 1 (5) (6) 

Simulation Equipment Structures 

Original C-E Original C-E ki = 2ke; ki = ke Equation Equation Equation Equation 

1. 

2. 

1. 

2. 

DRI 

Billions of 1972 Dollars 

Investment Equation +13.1 

Full Model, No Personal 

+2.8 +2.8 +3.2 

Tax Offset 14.4 3.6 3.1 2.6 

Full Model, with Personal 

Tax Offset 13.6 2.7 3.2 2.8 

Percent of Baseline 

Investment Equation +14.2 

Full Model, No Personal 

C3.0 +6.3 +7.2 

Tax Offset 15.7 3.9 7.7 6.5 

Full Mode1,wfth Personal 

Tax Offset 14.9 3.0 7.9 7 .O 

1.4 Michigan 

1. 

2. 

1. 

2. 

Billions of 1972 Dollars 

Investment Equation 1.4 1.6 .o .o 

Full Model, No Personal 

Tax Offset 1.5 1.6 .1 .1 

Full Model, with PersQnd 

Tax Offset .8 .9 -.4 -.4 

Perc ent o f Base line 

Inves men t Equation 1.5 1.7 .o .o 

Full Model, No Personal 

Tax Offset 1.6 1.8 .2 .1 

Full Model, with Personal 

Tax Offset .8 1.0 -1.0 -.9 

1.3 
-30-

Table 1 Investment Equations and Full Model Simulations Compared, 

Doubling Investment Credit for Equipment and Adding Credit 

for Structures, Change in Investment 1977-IV, Billions of 

1972 Dollars and Percent of Baseline 

(1) (2) (3) (4 1 (5) (6) 

Simulation Equipment structures 

Original C-E Original C-E k: = 2ke; ki = ke Equation Equation Equation Equation 

1.5 MPS (with Unborrowed Reserves at Baseline Values) 

Billions of 1972 Dollars 

Investment Equation +12.7 +2.7 +2.4 +3.2 

1. Full Model, No Personal 

Tax Offset +18.0 +lo. 8 6.0 +4.5 

2. Pull Model, with Personal 

Tax Offset +15.7 +4.3 +3.9 +3.6 

Percent of Baseline 

Investment Equation t-15.1 +2.8 +5.7 +6.8 

1. Full Model, No Personal 

Tax Offset +19.7 +I1.8 +15 .O +11.3 

2. Full Model, with Personal 

Tax Offset +17.2 94.7 * +9.7 +8.9 

1.5-~1 MPS kith Ml at Baseline Values 

Billions of 1972 Dollars 

Investment Equation +12 7 +2.7 +2.4 +3.2 

1. Full Model, No Personal 

Tax Offset +13 1 +4.4 +3.3 +2.2 

2. Full Model, with Personal 

Tax Offset +18.5 +8.2 +5.4 +5.0 

Percent of Baseline 

Investment Equation +15.1 +2.8 +5.7 +6.8 

1. Full Model, No Personal 

Tax Offset +14 a 4 +4.8 +8.1 C5.6 

2. Full Model, with Personal 

Tax Offset +20 2 +9.0' +13.5 +12 e 4 
-31- .. 

Table 1 Investment Equations and Full Model Simulations Compared, 

Doubling Investment Credit for Equipment and Adding Credit 

for Structures, Change in Investment 1977-IV, Billions of 

1972 Dollars and Percent of Baseline 

1.6 Wharton 

. Simulation Equipment Structures 

original - original - k; = 2ke; ki = ke Equation Equation 5

E uatioc Equation

Billions of 1972 Dol ars 

Investment Equation 5.1 3.2 2.4 1.5 

1. Full Model, No Personal 

Tax Offset 7.3 ' 3.0 3.2 1.3 

2. Full Model, with Personal 

Tax Offset 6.7 2.5 3.0 1.1 

Percent of Baseline 

Investment Equation 4.9 2.9 5.0 3.0 

1. Full Nodel, No Personal 

Tax Offset 8.0 3.3 8.0 3.3 

2. Full Model, with Personal 

Tax Offset 7.3 2.8 7.3 2.8 
-32-

Table 2. Full Model Simulations, Percent Changes from Baseline, Investment 

in Equipment, Structures and Housing, and Total Fixed Investment 

Mean, Low, High and Range of Models 

A. End of First Year 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (101 ,c 

Original C-E 

Equip- Struc- Hous- Total Equip- Struc- Hous- Total 

Simulations Measures ment tures ing Fixed ment tures ing Fked -

1. ITC: no personal 

tax offset 

” = 2ke; k; - ke 

e 

Mean 

Low 

High 

Range 

2. ITC: with personal 

tax offset 

ka = 2ke; k: 5 ke 

Mean 

Low 

High 

. Range 

3*, 10-5-3 

Mean 

Low 

High 

Range 

4. Ak; = +16.264% 

Mean 

Low 

High 

Range 

5. Au’ 9 -9.815% 

Mean 

1.9 1.6 .2 1.3 1,6 1.2 .2 1.1 

.8 ,1 -.o .4 .7 .1 -.1 .5 

2.8 3.0 .5 2.0 3.5 3.4 .6 1.8

2.0 2.9 .5 1.7 2.8 3.3 .7 1.3 

1.1 1.1 -.3 .7 -4 e3 -.3 e2 

-6 

1.8 

-.4 

3.2 

-1.2 

.8 

.1,

1.7 

-1.1 

1.1 

-.8 

2.0 

-1.2 

.8 

-.2 

.5 

1.2 3.6 2.0 1.6 2.2 2.8 2.0 .8 

1.0 1.6 .2 .9 ,% 1.2 .2 .7 

-4 

2.3 

-.o 

3.9 

-.o 

.3 

.3 

1.3 

.3 

2.1 

-.4 

4.9 

.o 

.4 

.1 

1.6 

1.9 3.9 .3 1.0 1.8 5.3 .4 1.4 

6.2 

2.3 

9.4 

7.1 

-1.2 

-12.0 

3.1 

15.1 

.2 

-.5 

1.0 

1.5 

2.7 

1.1 

4.6 

3.5 

4.7 

1.5 

8.8 

7.3 

-1.6 

-13.0 

2.0 

15.0 

-2 

-.7 

1.0 

1.7 

1.8 

.6 

4.3 

3.7 

1.4 1.8 .2 1.2 1.9 1.2 .4 1.2 

Low -1.0 -e1 -.6 -.5 -1.1 -.3 -.6 -.5 High 3.5 3.3 .5 1.9 5.0 3.8 .5 2.3 Range 4.5 3.4 1.1 2.4 6.1 4.1 1.1 2.8 

6. OTA Alternative 

Mean 1.2 1.1 .1 .8 1.0 .8 .2 . 7 Low .7 .1 -.o .4 .5 -.2 .o .2 High 1.8 2.4 .4 1.4 2.2 3.1 .4 1.2 Range 1.1 2.3 e4 1.0 1.7 3.3 .4 1.0 
-33-

Table 2 (Continued) 

B. End of Third Year 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 

Original C-E 

Equip- Struc- Hous- Total Equip- Struc- bus- Total 

Simulations Measures ment tures ing Fixed ment tures ing Fixed 

1. ITC: no personal 

tax offset 

k' = 2k,; ki = ke 

e 

Mean 8.7 6.9 -1.3 5.5 5.2 4.3 -92 3.5 

Low 1.5 .2 -8.3 .8 1.7 .2 -4.3 .8 

High 16.0 10.9 1.7 9.3 9.1 8.0 2.0 5.3 

Range 14.5 10.7 10.0 8.6 7.4 7.8 6.3 4.5 

2. ITC: with personal 

tax offset 

k: = 2ke; k: = ke 

Mean 7.2 5.4 -1.4 4.4 2.6 2.6 -.3 1.8 

Low .9 -.8 -5.7 .1 -1.0 -.7 -2.7 -.3 

High 15.4 11.1 1.8 9.7 6.8 7.6 2.9 4.4 

Range 14.5 11.9 7.5, 9.7 7.8 8.3 5.6 4.7 

3.. 10-5-3 

Mean 5.3 7.4 -.8 4.1 3.8 4.7 .2 3..1 

Low 2.5 .4 -8.5 1.9 1.3 .3 -3.8 1.0 

High 10.4 14.4 1.6 8.1 5.1 10.3 2.0 5.0 

Range 7.9 14.0 10.1 6.2 3.8 10.0 5.8 4.0 

4. Akk = +16.264% 

Mean 20.4 3.0 -2.4 10.0 11.3 .6 -1.2 5.3 

Low 3.6 -lQ. 9 -11.4 1.8 3.7 -14.6 -11.1 1.8 

High 41.5 15.2 3.2 21.1 18.8 5.5 2.8 7.5 

Range 37.9 26.1 14.6 19.3 15.1 20.1 13.9 5.7 

5. Au' -9.815% 

Mean 4.5 5.6 ' -1.1 3.3 3.5 3.3 -.l 2.5 

Low -1.8 -.1, -8.2 -.8 -2.0 -1.7 -4.0 -1.0 

High 8.8 10.4 1.8 5.0 8.2 7.0 2.1 5.6 

Range 10.6 10.5 10.0 5.8 10.2 8.7 6.1 6.6 

6. OTA Alternative 

Mean 5.1 4.7 -.7 3.3 3.2 3.1 .o 2.4 

Low 1.2 .2 -6.1 .6 1.2 .1 -3.6 .6 

High 10.6 9.5 1.3 7.0 5.4 7.3 1.6 3.7 

Range 9.4 9.3 7.4 6.4 4.2 7.2 5.2 3.1 
-34-

Table 2 (Continued) 

C. End of Fifth Year 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) * 

Original C-E 

Equip- Struc- Hous- Total Equip- Struc- Hous- Total 

Simulations Measures ment tures ing Fixed ment tures inp; Fixed 

1. ITC: no personal 

tax offset 

k' = 2ke; k: = ke 

e 

Mean 9.8 7.1 -.7 5.9 

Low 1.6 .2 -6.2 .8 

High 19.7 15.0 4.2 13.9 

Range 18.1 14.8 10.4 13.1 

2. ITC: with personal 

tax offset 

k: = 2ke; k: = ke 

Mean 

LOW 

High 

Range 

3.. 10-5-3 

Mean 

Low 

High 

Range 

4. AkL - +16.264% 

Mean 

Low 

High 

Range 

5. Au' = -9.815% 

Mean 

Low 

High 

Range 

6. OTA Alternative 

Mean 

Low 

High 

Range 

8.6 5.5 -1.2 4.9 

-8 -1.0 -3.5 -.2 

17 -2 9.7 1.2 9.6 

16.4 10.7 4.7 9.8 

7.5 9.5 .2 5.6 

3.2 .3 -7.3 1.6 

15.4 17.0 5.4 10.5 

12.2 16.7 12.7 8.9 

15.2 .6 -2.3 6.5 

2.8 -12.9 -11.5 1.4 

32.9 12.3 2.4 13.0 

30.1 25.2 13.9 11.6 

3.3 4,O .3 2.5 

-2.0 -.l -5.4 -.9 

6.7 9.3 3.8 6.3 

8.7 9.4 9.2 7.2 

4.3 3.5 -.2 2.8 

1.0 -.5 -4.0 .o 

8.3 8.4 3.4 6.8 

7.3 8.9 7.4 6.8 

6.0 5.2 .6 4.2 

1.8 -.1 -4.4 .9 

11.8 11.3 5.6 9.8 

10.0 11.2 10.0 8.9 

3.9 3.9 .2 2.7 

1,O -.9 -1.6 -.O 

7.4 8.9 2.9 3.8 

6.4 9.8 4.5 3.8 

5 -8 7.7 1.4 4.8 

2.6 .3 -5.0 1.6 

10.7 17.4 6.4 10.7 

8.1 17.1 11.4 9.1 

10.1 -.a .4 4.8 

3.0 -16.5 -7.3 1.4 

18.4 5.9 7.6 12.4 

15.4 22.4 14.9 11.0 

3.1 

-2.1 

3.5 ,8

-1.0 -3.5 

2,s 

-,9 

7.8 8.9 4.6 6.5 

9.9 9.9 8.1 7.4 

2.9 3.3 -5 2.2 

1.1 .1 -3.0 .6 

6.5 7.4 4.1 5.9 

5.4 7.3 7.1 5.4 
-35-

Table 2 (Continued) 

D. End of Seventh Year 

(1) (2) (3) 

EquipSimulations Measures ment 

1. ITC: no personal 

tax offset 

= 2k,; k: = ke 

Mean 9.0 

Low 1.6 

High 17.7 

Range 16.1 

2. ITC: with personal 

tax offset 

k; = 2k,; ki = ke 

(4) (5) (6) (7) (8) (9) (10) 

Original C-E 

Struc- Hous- Total Equip- Struc- Hous- Total 

tures ing Fixed ment tures 

5.3 .2 5.7 5.7 4.4 

-1.0 -1.1 .8 1.8 .1 

ina Fixed 

1.4 4.2 

-.1 .9 

3.6 6.4 

3.7 5.5 

1.7 3.5 

-1.4 -.l 

7.2 6.8 

8.6 6.9 

3.5 6.1 

-.3 1.8 

8.9 8.9 

9.2 7.0 

1.9 5.0 

-.4 1.4 

5.9 7.4 

6.3 6.0 

1.2 2.5 

-1.4 -.9 

1.7 6.0 

3.1 7.0 

1.5 2.4 

.4 .7 

5.0 4.1 

4.6 3.4 

9.4 1.8 9.8 

10.4 2.9 9.0 

4.6 .4 5.0 

-.8 -1.8 -.2 

9.0 3.4 10.3 

9.8 4.7 10.5 

9.3 1.3 7.2 

-2 -1.8 1.7 

20.0 4.9 16.0 

19.8 6.7 14.3 

-3.2 -2.0 -4.6 

9.9 8.5 

8.1 8.4 

4.2 4.1 

.9 -.7 

8.1 9.8 

7.2 10.5. 

6.7 7.9 

3.2 .2 

10.8 16.1 

7.6 15.9 

9.8 -1.0 

2.9 -13.4 

15.1 6.1 

12.2 19.5 

3.1 2.9 

-1.5 -1.7 

8.5 7.3 

10.0 9.0 

2.6 2.5 

1.1 *1 

4.2 6.2 

3.1 6 -1 

Mean 

LOW 

High 

Range 

3.. 10-5-3 

Mean 

Low 

High 

Range 

4. Ilk; = +16.264% 

Mean 

Low 

High 

Range 

5. Au' -9.815% 

Mean 

Low 

High 

Range 

6. OTA Alternative 

Mean 

Low 

High 

Range 

7.9 

.7 

16.5 

15.8 

9.4 

2.9 

23.0 

20.1 

-6.6 

-123.2 -12.4 -11.6 -66.1 

37.6 6.1 1.0 18.5 

160.8 18.5 12.8 84.6 

3.3 3 .I .8 2.6 

-1.3 -1.2 -1.4 -.4 

5.6 7.2 .9 4.7 

6.9 8.4 2.3 5.1 

4.0 2.5 .8 2.8 

1.0 -1.5 -.3 .6 

9.6 5.6 2.3 6.5 

8.6 7.1 2.6 5.9 
-. 

-36-

Table 3.1 Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

BEA 

(1) (2)

Simulations 

(3) (4) c51 (6 (7)

Percent Changes from Baseline 

(8) 

Investment Capital Stock 

Equip- Struc- EquipEquations Variables -ment tures Housing ment + Structures &psi1. ITC: no personal tax offset 

k; - 2ke; ki = ke 

Orig . Peak 10.8 10.0 -.O 2.5 -.O 

Quarter of Peak 12 12 1 28 1 

1979-IV 8.3 -1.0 -1.1 2.5 -.8 

C-E Peak 9.9 2.5 .6 2.2 . 4 -.o 

Quarter of Peak 

1979-IV 

28 

9.9 

12 

2.1 

27 

-.1 

28 

2.2 

I. 

-.5 

2. ITC: with personal tax offset 

kk = 2ke; ki = k 

e 

Orig. Peak 10.0 10.4 -2 2.4 .o 

Quarter of Peak 14 12 7 28 9 

1979-IV 7.9 .3 -.3 2.4 -.5 

C-E Peak 8.1 .7 * .9 1.6 .o 

Quarter of Peak 

1979-IV 

28 

8.1 

27 

.7 

9 

.6 

28 

1.6 

10 

-.I 

3. 10-5-3 

Orig . Peak 8.5 14.6 -.O 2.4 -* 0 

Quarter of Peak 28 14 1 28 1 

1979-IV 8.5 4.3 -1.8 2.4 -1.0 

C-E Peak 10.8 4.8 .6 1.9 -.O 

Quarter of Peak 28 28 27 28 1 

1979-IV 10.8 4.8 -.3 1.9 -.5 

4. Ak& = +16.264% 

Orig . Peak 21.3 -.0 .3 3.3 .o 

Quarter of Peak 12 1 27 28 7 

1979-IV 14.9 -6.6 -.2 3.3 -.9 

C-E Peak 18.8 4.0 .2 3.7 -.O 

Quarter of Peak 12 10 27 28 1 

1979-IV 15.1 .6 -.4 3.7 -1.0 
truc- 

-37-

Table 3.1 Full Model Simulations, Percent Changes from Baseline at '. 

(continued) Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

BEA 

(1) (2) (3) (4) (5) (6) (7) (8)

,Simulations Percent Changes from Baseline

-Investment Capital Stock 

Equip- S EguipEquations Variables -

ment -tures Housing Dent + Structures Housing 

5. Au' - 9.815% 

Orig. Peak 

Quarter of Peak 

1979-IV 

8.8 

12 

4.9 

10.4 

12 

-1.2 

-.O 

1 

-.7 

1.8 

28 

1.8 

-.O 

1 

-.8 

C-E Peak 7.1 2.6 .7 1.6 -.O 

Quarter of Peak 12 10 27 28 1 

1979-IV 6.4 1.7 .2 1.6 -.4 

6. OTA Alternative 

Orig. Peak 6.4 6.8 .1 1.2 -.O 

Quarter of Peak 

1979-IV 

12 

3.2 

12 

-1.5 

26 

-.3 

28 

1.2 

1 

-.5 

C-E Peak 5.4 2.2 .8 1.1 -.O 

Quarter of Peak 12 10 27 28 1 

1979-IV 4.2 .9 .4 1.1 -.3 
-38-

Table 3.2 Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Chase 

- (1) Simulations(2) (3) 

Equations Variables 

1. ITC: no personal tax offset 

k: = 2k,; k: = ke 

(4) c5 1 (61 (7) (8) (9 1

Percent Changes from Baseline 

Investment Capital Stock 

-

Equip- Struc- Equipment tures Housing ment Structures Housing 

2. 

3. 

4. 

Orig. Peak 

Quarter of Peak 

6.9 

26 

9.2 

21. 

1.7 

20 

6.4 

28 

4.5 

28 

8.7 

28 

1979-IV 6.8 8.'7 1.0 6.4 4.5 8.7 

C-E Peak 

Quarter of Peak 

1979-IV 

8.8 

26 

8.5 

8.9 

21 

8.5 

1.7 

17 

.9 

7.5 

28 

7.5 

4.3

ia 

4.3 ' 

8.7 

28 

8.7 

ITC: with personal tar offset 

k: = 2ke; k' = ke

S 

Orig 0 Peak 

Quarter of Peak 

1979-IV 

3.7 

20921 

2.7 

6.0 

21 

5.7 

2.8 

10 

-.5 

4-1 

28 

4.1 

3.1 

28 

3.1 

7.8 

28 

7.8 

C-E Peak 4.5 6.0 1.3 4.7 3.0 7.7 

Quarter of Peak 20 21 17 28 28 28 

1979-IV 3.8 5.3 -.4 4.7 3.0 7.7 

10-5-3 

Or ig . Peak 

Quarter of Peak 

7.0 

28 

12.8 

28 

2.6 

20 

5.4 

28 

5.4 

28 

9.0 

28 

1979-IV 7.0 12.8 1.7 5.4 5.4 9..o 

C-E Peak 10.8 12.8 2.7 7.6 5.2 8.9 

Quarter of Peak 27 28 24 28 28 28 

1979-IV 10.2 12.8 1.6 7.6 5.2 8.9 

AkL = +16.264% 

Orig. Peak 

Quarter of Peak 

1979-IV 

10.4 

12 

9.7 

6.3 

21 

6.1 

1.7 

24 

1.0 

9.2 

28 

9.2 

3.7 

28 

3.7 

9.0 

28 

9.0 

C-E' Peak 11.0 6.1 1.6 9.9 3.5 9.1 

Quarter of Peak 

1979-IV 

26 

10.7 

28 

6.1 

16 

.8 

28 

9.9 

28 

3.5 

28 

9.1 
-- 

-39-

Table 3.2 Full Model Simulations, Percent Changes from Baseline at ” 

(continued) Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Chase 

(1) Simulations (2) (3) 

Equations Variables 

5. Au’ - 9.815% 

Orig. Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

6. OTA Alternative 

Orig. Peak 

Quarter of Peak 

197 9-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

(4) (5) (6) (7) (a 1 (9) Percent Changes from Baseline 

-Lnvestment Capital Stock 

Equip- Struc- Equipment tures Housing ment Structures Housing; 

6.0 7.8 1.2 6.2 4.3 8.8 

11 17 20 2a 28 28 

5,6 7.2 .7 6.2 4.3 8.8 

a .a 7.9 1.1 8.2 4.2’ ’8.8 

27 17 24 28 28 28 

8.5 7.3 .6 8.2 4.2 8.8 

3.0 5.3 1.3 4.0 3.1 8.3 

26 21 17 28 28 2a 

2.9 4.5 .4 4.0 3.1 8.3 

4.1 5.1 1.3 4.7 3.0 8.4 

26 17,21 16 2a 28 28 

3.9 4.4 .4 4.7 3.0 8.4 
-40-

Table 3.3 Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

DRI 

(4) 

Percent Changes from Baseline - Investment Capital Stock 

Equip- Struc- EquipEquations Variables -ment turea Housing ment Structures Housing 

1. ITC: no personal tax offset 

k: - 2ke; k: = ke r 

Orig . Peak 17.7 11.2 0.9 10.4 2.9 0.0 

Quarter of Peak 28 10 6 28 27,28 5 

1979-IV 17.7 6.3 -0.5 10.4 2.9 -0.5 

C-E Peak 5.1 8.2 3.6 2.9 2..3 . ,.1

Quarter of Peak 12 10 28 28 27 28 

1979-IV 4.6 .6.0 3.6 2.9 2.3 .1 

2. ITC: with personal tax offset 

k; = 2ke; k'

S = ke 

Orig . Peak 16.5 11.1 3.4 9.8 2.9 0.1 

Quarter of Peak 28 12 28 28 28 10 

1979-IV 16.5 6.4 3.4 9.8 2.9 -0.1 

C-E Peak 3.8 7.6 7.2 2.0 2.4 .5 

Quarter of Peak 13 12,17 28 27 28 27 

1979-IV 3.5 6.6 7.2 2.0 2.4 .5 

3. 10-5-3 

Or ig. Peak 23.0 20.0 1.2 10.3 5.4 0.0 

Quarter of Peak 28 28 899 28 28 8 

1979-IV 23.0 20.0 0.8 10.3 5.4 -0.0 

C-E Peak 5.7 16.1 8.9 2.7 4.2 .6 

Quarter of Peak 28 28 28 28 28 28

1979-IV ' 5.7 16.1 8.9 2.7 4.2 0.0 

4. AkA = +16.264% 

Orig . Peak 41.5 16.3 1.5 23.3 2.6 0,o

Quarter of Peak 12 10 596 28 23 5

1979-IV 37.6 3.0 -1.0 23.3 2.6 -1.1 

C-E Peak 11.4 6.7 2.4 5.5 0.9 0.2 

Quarter of Peak 11 10 798 28 18 27,28

1979-IV 8.0 0.6 5.9 5.5 0.8 0.2 
-- 

-41-

Table 3.3 Full Model Simulations, Percent Changes from Baseline at '.. 

(continued) Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

DRI 

(1) (2) (3) (4) (5) (6) (7) (8) Simulations 

- Percent Changes from Baseline (9) 

Investment Capital Stock 

.-

Equip- Struc- E!wiPEquations Variables nent tures Housing ment Structures Housing 

5. Au' - 9.815% 

\ Orig. Peak 6.9 9.0 2.9 3.0 2 .I .1 

Quarter of Peak 10 9,io 25,26 28 28 10,26 

1979-IV 4.9 5.6 2.6 3.0 2.1 .1 

C-E Peak 2.1 4.7 3.0 1.0 1.2 .3 

Quarter of Peak 9,lO 9 25,26 27,28 28 26 

1979-IV 1.9 3.5 2.9 1.0 1.2 .3 

6. OTA Alternative 

Orig. Peak 10.6 9.6 2.3 5.9 2.4 0.0 

Quarter of Peak 12 11 28 28 28 6 

1979-IV 9.6 5.6 2.3 5.9 2.4 -0.1 

C-E Peak 3.4 7.4 5.0 1.5 2.1 .3 

Quarter of Peak 

1979-IV 

12 

2.7 

11 

6.2 

28 

5.8 

27,28

1.5 

28 

1.5 

28 

.3 
-4 2-

Table 3.4 Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Michigan 

(1) (2) (3) (4) (5 1 (6) (7) (8) (9 ) Simulations Percent Changes from Baseline -* 

Investment Capital Stock 

Equip- .. Struc- Equip­ ~­ Equations Variables -

ment tures Housing ment Structures Housing 

1. ITC: no personal tax offset 

= 2ke; ki = k 

e 

Orig. Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

2. ITC: with personal tax offset 

k; - 2ke; k'

S = ke 

Orig e Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

3. 10-5-3 

Orig . Peak 1 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

4. Ak', = +16.264% 

Orig. Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

1.7 -2 .o NOT AVAILABLE 

23 10 28 

1.6 .1 .o 

1.9 .2 .o 

23

1.8 

9

.1 

596 

-.o 

.9 .o .o 

11 .1 .1 

.7 -.8 -1.3 

1.1 -.o .o 

10 1 1 

.9 -.7 -1.3 

3.8 -5 .8 

12 10 28 

2.9 .2 .8 

3.9 .4 .8 

11 10 28 

3.2 .2 .8 

3.7 .4 .o 

11 10 6 

2.6 .1 -.l 

3.8 .4 .o 

10 9,lO 5 

2.9 .1 -.l 
-4 3-

Table 3.4 Full Model Simulations, Percent Changes from Baseline at 

(continued) Peak and in Quarter 28 (1979-IV1, Investment and Capital Stocks 

Michigan 

. 

* Simulations (1) (2) (3) (4) (5) (6) (7) (8) Percent Changes from Baseline (9) 

-Investment Capital Stock 

Equip- Struc- E!Wip­ Equations Variables -

ment -tures Housing ment Structures Housing 

5. AU' I- 9.815% 

Orig. Peak - .4 .2 ~ .6 NOT AVAILABLE 

Quarter of Peak 1 28 28 

1979-IV -1.3 .2 .6 

C-E Peak -.5 .1 .6 

Quarter of Peak 1 28 28 

1979-IV -1.5 .1 .6 

6. OTA Alternative 

Orig. Peak 1.2 .2 .4 

Quarter of Peak 12 10 28 

1979-IV 1.0 .1 .4 

C-E Peak 1.2 .2 .4 

Quarter of Peak 11 10 28 

1979-IV 1.1 .1 .4 
-44 -

Table 3.5 Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

MPS (with Unborrowed Reserves at Baseline Values) 

(1) (2) (3) (41 c51 (6 1 (9 (8) (31 

Simulations Percent Changes from Baseline 

Investment Capital Stock -

Equip- Struc- EquipEquations Variables -

ment tures Housing ment Structures Housing 

1. ITC: no personal tax offset 

k: = 2ke; ki 5 k

e 

Orig. Peak 

Quarter of Peak 

19.7 

20 

15.1 

21 

4-4 

21 

10.2 

28 

3.9 

28 

.7 

28 

1979-IV 11.6 9.4 1.8 10.2 3.9 .7 

C-E Peak 11.8 11.4 5.8 5.6 3.0 .9 

Quarter of Peak 20 18 21 27 28 28 

1979-IV 5.5 5.6 3.1 5.6 3.0 .9 

2. ITC: with personal tax offset 

ka = 2ke; k: = ke 

Orig e Peak 

Quarter of Peak 

17-2 

20 

10.0 

21 

3.0 

27 

9.0 

28 

2.6 

28 

'-*O 

1 

1979-IV 12.7 9.0 2.8 9.0 2.6 -.2 

C-E Peak 6.2 9.9 5.5 2.3 2.5 - -.o 

Quarter of Peak 28 25 27 28 28 1 

1979-IV 6.2 9.8 5.3 2.3 2.5 -.1 

3. 10-5-3 

Or ig . Peak 10.9 17.1 5.9 5.6 4.5 .9 

Quarter of Peak 21 21 23 28 28 28 

1979-IV 7.8 12.7 4.9 5.6 4.5 .9 

C-E Peak 10.9 17.4 7.1 5.2 4.5 1.1 

Quarter of Peak 21 20 23 28 28 28 

1979-IV 6.7 10.7 6.0 5.2 4.5 1.1 

4. A@ i. +16.264% 

Orig . Peak 32.6 13.9 6.6 12.9 2.9 .6 

Quarter of Peak 14 17 9 20 24 21 

1979-IV -123.2 -12.4 -11.6 -6.3 2.2 .1 

C-E Peak 18.4 5.9 7.8 9.1 1.2 1.2 

Quarter of Peak 20 19 21 27 26 28 

1979-IV 8.6 .2 3.3 9.o 1.2 1.2 
-- 

-45-

Table 3-5 Full Model Simulations, Percent Changes from Baseline at ' 

(continued) Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

MPS (.withUnborrowed.Reserves at Baseline Values) 

(1) (2) (3) ... Simulations Percent Changes from Baseline 

-Investment Capital Stock 

Equip- Struc- EquipEquations Variables ment tures Housing ment Structures Housing 

5. Au' = - 9.815% 

Orig. Peak 7.2 9.6.. 3.8 3.6 2.6 .6

Quarter of Peak 16 17 20 26 28 28

1979-IV 2.8 4.7 .9 3.5 2.6 .6 

C-E Peak 

Quarter of Peak 6.7 9.2 4.6 3.2 2.4 .7 

20 18 20 26 28 28 1979-IV 1.5 3.3 .9 3.1 2.4 .7 

6. OTA Alternative 

. Orig. Peak 

Quarter of Peak 

8.6 

16 

8.5 

18 

3.4 

21 

4.4 

27 

2.3 

28 

.5 

28 

1979-IV 3.0 4.2 1.2 4.4 2.3 .5 

C-E Peak 6.5 7.7 4.2 3.1 1.9 .6 

Quarter of Peak 1979-IV 20 

1.8 

18 

2.3 

21 

1.3 

26 

3.0 

28 

1.9 

28 

.6 
-4 6-

Table 3.5 -Ml Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Mps Y with M-1 at Baseline Values . 

(3) (41 CS1 (6 (71 (81 (91

Percent Changes from Baseline 

Investment Capital Stock 

Equip- Struc- Equip­ .. 

Equations Variables -

ment tures Housing ment Structures Housing 

1. ITC: no personal tax offset 

k; = 2ke; ki = ke 

Orig . Peak 14.9 9.0 .o 7.3 2.1 0 

Quarter of Peak 16 17 I 26 28 192 

1979-IV 6.8 2.5 -13.7 7.3 2.1 -1.8 

C-E Peak 5.3 7.1 .o 2,2 1.5 0 

Quarter of Peak 17 17 1 23 24 1 

1979-IV -2.6 - .4 -14.8 1.5 1.4 -1.7 

2. ITC: with personal tax offset 

k: = 2ke; k: = ke 

Orig. Peak 20.2 13.7 7.6 10-6 3.6 1.1 

Quarter of Peak 20 21 27 28 28 28 

1979-IV 14.1 11.4 7.5 10.6 3.6 1.1 

C-E Peak 9.0 12.4 5.7 3.8 3.1 1.1 

Quarter of Peak -20 20 21 27 28 28 

1979-IV 3.3 7.3 2.6 3.8 3.1 1.1 

3. 10-5-3 

Orig . Peak 5.7 10.5 .o 2.5 2.5 0 

Quarter of Peak 19 18 1 24 27 1 

1979-IV -.8 1.8 -17.1 2.2 2.5 -1.9 

C-E Peak 3.2 11.7 .o 1.3 2.7 0 

Quarter of Peak 

1979-IV 

18 

-4.9 

18 

1.0 

1 

-18.4 

23 

$4 

26 

2.6 

1 

-1.9 

4. Ak& = +16.264% 

Orig . Peak 

Quarter of Peak 

30.5 

15 

7.3 

21 

.o 

1 

14.6 

24 

2.0 

28 

0 

3 

1979-IV -6.6 5.7 -5.3 12.4 2.0 -2.0 

C-E Peak 10.9 1.2 .1 4.8 .1 0 

Quarter of Peak 

1979-IV 

16 

.1 

14 

-6.4 

4 

-17.9 

24 

4.2 

17 

-.7 

5 

-2.1 
-- 

-47-

Table 3.5-Ml Full Model Simulations, Ftrcent Changes from Baseline at 

(continued) Peak and in Quarter 28 (1.379-IV), Investment and Capital Stocks 

MPSr with M-1 a.t Baselinc Values 

Simulations (1) (2) (3) (4) (5) (6) (7) (8) Percent Changes from Baseline (9) 

* -Investment Capital Stock 

Equip- Struc- EquipEquations Variables ment tures Housing ment Structures Housing 

5. &I' - 9.815% 

Orig. Peak 3.8 5.4 .o 1.6 1.3 0 

Quarter of Peak 14 17 ' 2 22 25 293 

1979-IV -.2 .4 -8.8 1.3 1.3 -1.3 

C-E Peak 1.5 5.5 .o .6 1.3 0 

Quarter of Peak 13 17 2 19 25 1 

1979-IV -2.6 .5 -9.8 -.1 1.3 -1.4 

6. OTA Alternative 

Orig. Peak 5.6 5.0 .o 2.6 1.2 0 

Quarter of Peak 15 17 1Y2 24 26 192 

1979-IV 1.4 .6 -7.5 2.5 1.2 -1.1 

C-E Peak 2.1 4.7 .o .9 1.1 0 

Quarter of Peak 16 17 1 21 24 1 

1979-IV -2.3 -.4 -8.8 .3 1.0 -1..I 
-48-

Table 3.6 Full Model Simulations, Percent Changes from Baseline at 

Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Wharton 

(1) (2) (3) Simulations 

Equations Variables 

1. ITC: no personal tax offset 

k: = Zk,; k: = k 

e 

Orig. Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

2. ITC: with persona1 tax offset 

Otig. Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

3. 10-5-3 

Orig . Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

4. AkL = +16.264% 

Orig. Peak 

Quarter of Peak 

1979-IV 

C-E Peak 

Quarter of Peak 

1979-IV 

(41 c51 (6 1 (?1 (8) (9 1

Percent Changes from Baseline r 

Investment Capital Stock* -

Equip- Struc- Equip­

-

ment tures Housing ment Structures Rousing8.0 8.0 1.6 

21 21 10,14 

8.0 8.0 -.2 6.8 2.8 .2 

4.0 4.0 1.0 

28 28 9,lO 

4.0 4.0 .9 3.1 1.3 .P 

7.4 7.4 1.8 

21 21 17 

7-1 7.2 -1.8 6.0 2.5 .1 

3.1 3.1 1.1 

28 28 18 

3.1 3.1 -1.4 2.3 1.0 -.l 

7.5 5.9 1.8 

28 28 17 

7.5 5.9 1.5 4.7 1.4 .4 

4.3 3.0 3.0 

28 28 28 

4.3 3.0 3 .O 2.4 .5 .3 

18 6 -5.8 3.1 

28 1 12 

18.6 -9.5 -.2 17.4 -5.7 .3 

13 4. -5.8 2.4 

28 1 6 

13.4 -13.3 2.1 12.5 -7.2 .3 

* Peaks not readily available. 
-- 

-49-

Table 3 6 Full Model Simulations, Percent Changes from Baseline at 

(continued) Peak and in Quarter 28 (1979-IV), Investment and Capital Stocks 

Wharton 

(1) (2) (3) (4) (5) (6) (7) (8 1 (9) Simulations 

- Percent Changes from Baseline 

Investment Capital Stock* 

Equip- Struc- E&PEquations Variables ment tures Housing ment Structures HousingOrig. Peak 

Quarter of Peak 

2.6 

28 

2.2. 

28 

1.2 

14 

1979-IV 2.6 2.2 .9 2.1 .8 .2 

C-E Peak 1.5 1.3 1.7 

Quarter of Peak 28 28 28 

1979-IV 1.5 1.3 1.7 1.1 .5 .2 

6. OTA Alternative 

Orig. Peak 3.5 2.2 1.o 

Quarter of Peak 28 28 13 

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i 
k9 = 2ke; 4,1976-IV 5.8 8.3 13.7 1.2 22.6 9.7 10.2 

e 59 1977-IV 4.5 10.2 14.7 1.5 26.6 11.1 11.4 * 

ki = ke 6,1978-IV 6.5 11.4 17.0 1.7 24.3 11.4 12.0 

7 1979-IV 7.2 11.7 20.2 1.7 17.3 11.9 11.7 

C-E 1,1973-IV 3.4 2.0 1.9 1.0 2.5 1.0 2.0 

2s 1974-IV 5.8 4.9 5.9 1.3 4.6 2.7 4.2 

3,1975-IV 5.9 7.1 6.7 1.3 8.2 3.0 5.4 

4,1976-IV 4.4 9.3 5.8 1.2 14.2 4.5 6.6 

5 9'1

977-117 5.0 11.3 6.4 1.7 18.7 4.6 8.0 

69.1978-IV 8.7 12.8 7.8 1.9 16.8 5.3 8.9 

7,1979-IV 10.9 13.3 9.4 1.9 10.1 6.4 8.7 

2. ITC: with Orig. 1,1973-IV 3.1 .1 2.6 .2 1.1 .6 1.3

Personal 2, 1974-IV 7.0 1.2 12,5 .2 3.4 3.9 4.7 

Tax Offset 3,1975-IV 8.5 4.4 15.0 .1 7.9 5.0 6.8 

k; = 2ke; 4,1976-IV 6.9 5.3 14.5 -.2 14.7 8.7 8.3 

5 3 1977-IV 6.5 6.3 15.1 -.3 18.5 10.4 9.4 = k 6,1978-IV 7.8 5.5 17.4 -.4 20.6 10.2 10.2 

e 7 9 1 9

79-IV 7.9 5.3 21.2 -.5 18.8 9.8 10.4 

C-E P,1973-IV .7 .4 1.8 .5 -.4 -.4 .3 

2 9 1974-IV 2.7 1.5 5.0 .4 -1.1 1.0 1.6 

3 1975-IV 4.9 3.9 6.8 .1 -.4 1.3 2.8 

4 9 1976-IV 4.5 5.7 6.8 -.2 2.4 3.6 3.8 

5,1977-IV 6.4 6.9 7.2 -.l 6.9 4.1 5.2 

6, 1978-IV 7.7 6.3 8.6 -.l 11.7 4.2 6.4 

7 9 1979-IV 8.8 6.3 10.7 -.2 14.1 3.9 7.3 

3. 10-5-3 Orig. 1,1973-IV 2.5 .6 1.6 2.1 2.4 .7 1.6 

2,1974-IV 6.1 2.5 7.9 2.8 4.8 2.2 4.4 

3,1975-IV 6.2 405 12.5 3.0 8.2 3.6 6.3 

4 1976-IV 4.2 7.0 15.1 3.0 14.4 5.5 8.2 

5 %1977-IV 4.0 10.2 20.1 3.1 19.9 7.6 10.8 

6 1978-IV 7 .a 13.2 27 .a 3.1 20.5 9.4 13.6 

7,1979-IV 9.6 14.4 33.0 3.5 16.9 11.4 14.8 

C-E 1,1973-IV 1.2 .a 1.0 1.9 2.9 .2 1.3 

2 s 1974-IV 3 .O 3.2 4.6 2.9 4.8 .7 3.2 

3 1975-IV 3.3 5.2 7.4 3.0 7.7 1.5 4.7 

4 1 976-IV 2.4 8.5 8.3 2.8 14.0 2.5 6.4 

5 1977-117 4.4 12.5 10.5 3.1 20.6 3,9 9.2 

6,1978-IV 9.8 16.5 14.8 3.3 20.8 5.5 11.8 

7 1979-18 13.0 17.6 18.3 3.7 15.4 7.5 12.6 
6.6% ,9V 

3,1975-IV 10.4 10.2 32.5 2.8 27.1 9.7 15.4 

e 491976-IV 6.4 11.1 24.6 2.6 32.1 9.0 14.3 

591977-IV 6.1 12.1 24.9 2.6 19.9 9.4 12.5 

6,1978-IV 9.2 13.2 31.2 2.6 -17.8a 11.4 8.3a 

731979-IV 11.5 13.4 38.1 2.6 -136.4a 13.9 -9.5a 

C-E 1,1973-IV 8.1 4.1 3.4 2.1 1.9 1.1 3.4 

291974-IV 13.8 8.4 10.5 3.0 6.1 4.0 7.6 

3,1975-IV 10.7 10.1 9.8 2.8 11.6 3.8 8.1 

4,1976-IV 5.5 11.3 6.2 % 2.5 19.0 3.0 . 7.9 

5 9' 1977-1V 5.9 12.4 6.9 2.7 23.8 3.2 9.2 

67.1978-IV 11.7 13.9 9.'7' 2.9 20.2 5.3 10.6 

7,1979-IV 15.2 14.3 11.4 2.9 10.6 8.0 10.4 

5. Au'= Orig. 1,1973-IV 3.5 3.5 3,4 -.9 2.6 .7 2.1 

-9.815% 2,1974-IV 7.8 6.7 8.5 -1.1 5.3 2.0 4.9. 

3,1975-IV 7.0 7.2 6.9 -1.3 7.7 2.7 5.0 

4,1976-IV 3.5 7.6 3.7 -1.8 10.9 2.9 4.5 

5,1977-IV 1.0 8.5 5.4 -1.8 12.1 3.0 4.7 

6,1978-IV 2.8 9.3 7.5 -1.3 9.7 3.3 5.2 

7,1979-IV 4.0 9.7 9.0 -.9 5.6 4.2 5.3 

C-E 1,1973-IV 2.9 4.3 4.0 -1.0 2.6 .3 2.2 

2,1974-IV 5.3 8.3 4.2 -1.2 4.6 1.0 3.7 

3,1975-IV 4.5 8.6 3.2 -1.5 6.5 1.4 3.8 

491976-IV 2.6 9.4 2.0 -1.9 10.1 1.4 3.9 

5,1977-IV 2.4 10.6 3.2 -1.8 12.5 1.5 4.7 

69 1978-IV 5.3 12.0 4.5 -1.3 9.5 1.9 5.3 

7,1979-IV 7.3 12.5 5.2 -1.1 3.6 3.0 5.1 

6. OTA Alter- Orig. 1,1973-IV 2.6 1.0 1.9 .7 2.4 .8 1.6 

native 2,1974-IV 5.6 2.8 8.8 1.0 4.9 2.4 4.2 

3,1975-IV 4.7 4.0 10.8 1.0 7.6 3.O 5.2 

4,1976-IV 1.8 4.8 8.6 1.0 11.3 3.2 5.1 

5,1977-IV .o 5.2 8.6 1.1 13.0 3.6 5.3 

6,1978-IV 1.6 5.6 11.2 1.1 11.0 4.1 5.8 .. 

7,1979-IV 2.3 5.4 13.5 1.3 6.8 5.O 5..7 

C-E 1~1973-IV 2.2 1.2 1.1 .5 2.1 .4 1.2 

2 1974-IV 4.1 3.4 4.4 .9 3.5 1.3 2.9 

3,1975-IV 3.3 4.3 5.7 1.0 5.4 1.6 3.6 

4,1976-IV 1.4 5.4 4.3 1.0 8.9 1.7 3.8 

5,1977-IV 1.2 5.9 4.2 1.1 11.4 1.9 4.3 

6,1978-IV 3.6 6.4 6.4 1.2 9.1 2.4 4.8 

7,1979-IV 4.9 6.3 8.4 1.4 3.7 3.5 4.7 

%sing MPS simulations with MI at baseline values the MPS differences were 

16.0 and -6.7, respectively, in 1978 and 1979 and the means were 13.9 

and 12.1. 
-80-

Table 8,1 Full Model Simulations, Changes from Baseline, Quarter 28 

cl979-IV), Billions of 1972 Dollars, Investment in Equipment, 

Structures and Housing, Tatal Fixed Investment, GNPj and Net 

Federal Budget Surplus 

Simulation 1: ITC: No Personal Tax Offset 

k; * 2ke; k;(i)k,

(1) C21 (3) (5) (6) (7) (8)

Model 

BU Chase DRI Michigan MPS Wharton mn 

Original Equations 1 

Equipment 8.3 6.8 17.4 1.6 11.6 8.0 9.0 

structures -.5 4,4 3.1 -1 4.7 4.0 2.6 

Housing -.6 .6 -.3 .o 1.0 -.1. .I 

Total Fixed Invest. 7.2 11.7 20.2 1.7 17.3 11.9 11.7 

GNP 6.8 23.5 39.4 1.5 40.8 33.8 24.3 

Net Federal Budget 

Surplus -20.3 -11.4 -6.8 -2.3 a -10.6 -9.7 -10.2 

C-E Equations 

Equipment 9.9 8.5 4.5 1.8 5.6 4.0 5.7 

Structures 1.1 4.2 8.0 .1 2.8 2.0 2.2 .~ 

Housing -.O .5 1.9 -.O 1.7 .5 .8 

Total Fixed Invest. 10.9 13.3 9.4 1.9 10.1 6.4 8.7 

GNP 13.7 25.5 29.5 1.6 21.0 20.3 18.6 

Net Federal Budget

Surplus -16 .? -11e 3 -6.4 -2.3 a -12.3 -10.7 -10.0 

Variable --I 

a

Increase in investment tax credit applied only to equipment. 
-8'1- Table 8p2 Full Model Simulations, Changes from Baseline, Quarter 28 

(1979-IV), Billions of 1972 Dollars, Investment in Equipment, 

Structures and Housing, Total Fixed Investment, GNP, and Net 

Federal Budget Surplus 

Sixnulation 2: ITC: With Personal Tax Offset

kl - 2ke; k: - ke

(3) (4) (5) (8) . . Model 

Var iab1e -

BEA -Chase DRI Michigan MPS Wharton Mean

Equipment 

Structures 

Housing 

Total Fixed Invest. 

GNP 

Net Federal Budget 

Surplus 

Equipment 

struc tur es 

Housing 

Total Fixed Invest. 

GNP 

Net Federal Budget

Surplus 

Original Equations 

7.9 2.7 16.3 .7 12.7 7.2 7.9 

.2 2.9 3.1 -.4 4.5 3.6 2.3 

-.2 -.3 1.8 -.7 1.6 -1.0 .2 

7.9 5.3 21.2 -.4 18.8 9.8 10.4 

-3.0 -2.7 30.3 -9.6 33.0 22.7 11.8 

-3.3 2.1 3.5 2.8 4.5 .6 1.7 

C-E Equations 

' 8.1 3.9 3.5 .9 6.2 3.1 4.3 

, .3 2.7 3.3 -.3 4.9 1.5 2.1 

.3 -.2 3.9 -.7 3.0 -.8 .9 

8.8 6.3 10.7 -.l 14.1 3.9 7.3 

1.4 -1.2 21.2 -9.4 20.4 7.1 6.6 

-.7 2.1 2.9 2.8 6.5 -1.1 2.1 
-82-

Table 8.3 Full Model Simulations, Changes from Baseline, Quarter 28 

(1979-1'3), Billions of 1972 Dollars, Investment in Equipment, 

Structures and Hoiising, Total Fixed Investment, GNP, and Net 

Federal Budget Surplus 

Simulation 3: 10-5-3 

(1) (2) (3) (4) (5) (6) (7) (8)

Model 

Variable -BEA -

Chase DRI Michigan -

MPS Wharton Mean 

Original Equations t 

Equipment 8.5 7.0 22.7 2.9 7.8 7.6 9.4 

Structures 2*1 6.4 9.9 .I 6.4 3 .O 4.6 

Housing -1.0 1.0 .4 .4 2.7 -8 .? 

Total Fixed Invest. 9.6 14.4 33.0 3.4 16.9 11.4 14.8 

GNP 15.8 33.8 44.0 1.2 43.2 35.1 28.8 

Net Federal Budget 

Surplus -20.2 -17.8 -4.9 -18.5 -8.9 -22.7 -15.5 

C-E Equations 

Equipment 10.8 10.3 5.6 3.2 6.7 4.3 6.8 

Structures 2.4 6.4 4.9 $1 5.3 1.5 3.9 

Housing -.2 .9 4.8 .4 3.4 1.6 1.8 

Total Fixed Invest. 13.0 17.6 18.3 3.7 15.4 7.5 12.6 

GNP 22.4 39.2 31.1 1.6 37.4 28.9 26.8 

Net Federal Budget -16 e 6 -17.8 -8.9 -18.4 -8.5 -23.4 -15.6 

Surplus 
-83-

Table 8? 4 Full Model Simulations, Changes from Baseline, Quarter 28 

(1979-IV), Billions of 1972 Dollars, Investment in Equipment, 

Structures and Housing, Total Fixed Investment, GNP, and 

Net Federal Budget Surplus 

(1) (2) (3) (4) (5) (6) (7) (8) 

Variable - Chase DRI Michigan MPSL Wharton Mead 

Original Equations' 

Equipment 15.0 9.7 37.1 2.6 -123.7 18.7 -6.8 

Structures -3.3 3.1 1.5 .1 -6.2 -4.8 -1.6 

Housing -.l .6 -.5 -.l -6.5 -0.1 -1.1 

Total Fixed Invest. 11.5 13.4 38.1 2.6 -136.4 13.9 -9.5 

GNP 10.1 24.9 69.1 1.6 -184.9 33.7 -7.6 

Net Federal Budget 

Surplus -.24 .0 -12.2 -8.9 -3.5 -61.4 -29.6 -23.3 

C-E Equations 

Equipment ' 15.1 10.7 7.9 2.9 8.7 13.5 9.8 

Structures . .3 3.1 .3 .1 .1 -6.7 -.S 

Housing -.2 .5 3.2 -.l 1.9 1.1 1.1 

Total Fixed Invest. 15.2 14.3 11.4 2.9 10.6 8.0 10.4 

GNP 14.9 25.8 41.4 1.9 23.8 23.4 21.9 

Net Federal Budget 

Surplus -21.0 -12.3 -7.7 -3.3 -18.4 -30.0 -15.4 

Model 

BEA 

lFigures for equations using Ml at baseline values were 

Equipment -

MPS

-6.6 -

Mean

12.8 -

MPS

.1 -

Mean

8.4 

Structures 2.9 -.l -3.2 -1.0 

Housing -3.0 -.5 -10.0 -.9 

Total Fixed Investment -6.7 1 2;L -13.1 6.5 

GNP 42.5 30.3 -19.5 14,6 

Net Fed. Budget Surplus -25.0 -17.2 -70.4 -24 1 

Original Equations , C-E Equations . ___ 
-8 4-

Table 8.5 Full Model Simulations, Changes from Baseline, Quarter 28 

(1979-1V), Billions of 1972 Dollars, Investment in Equipment, 

Structures and Housing, Total Fixed Investment, GNP;and 

Net Federal Budget Surplus 

(1) 

Variable 

Equipment 

Structures 

Housing 

Total Fixed Invest. 

m 

Nee Federal Budget 

Surplus 

Equipment 

Structures 

Housing 

Total Fixed Invest. 

GNP 

Nee Federal Budgee

Surplus 

5.0 5.7 

-.5 3.6 

-.4 -4 

4.0 9.7 

3.8 19.4 

-u04 -10 3 

6 -4 8.5 

..a 3.6 

.1 .3 

7.3 12.5 

10.2 23.4 

-is. 4 -9.8 

Original Equations 

499 -1.3 2.8 

2.7 .l 2,3 

1.4 .3 .5 

9.0 -.9 5.6 

21.8 1.4 12.8 

-13,6 -5.2 -9.9 

C-E Equations 

199 -1.5 1.5 

1.7 .1 1.7 

1.6 .3 .s 

5.2 -1.1 3.6 

17.7 1.3 6.0 

-14.5 -5.2 -11.3 

2.6 3.3 

1.1 1.6 

.5 -5 

4.2 5.3 

12.1 11.9 

-18 e 3 -12.6 

1.5 3,1 

.6 1.4 

.9 .6 

3.0 5.7 

8.9 11,3 

-18.9 12.5 
-85-

Table 8,6 Full Model Simulations, Changes from Baseline, Quarter 28 

(1979-IV), Billions of 1972 Dollars, Investment in Equipment, 

Structures ami Xousing, Total Fixed Investment, GNP, and 

Net Federal Budget Surplus 

Simulation 6: OTA Alternative 

. 

Variable 

Equipment 

Structures 

Housing 

Total Fixed Invest, ' 

GNP 

Net Federal Budget 

Surplus 

Equipment 

Structures 

Housing 

Total Fixed Invest. 

GNP 

Net Federal Budget

Surp1us 

(3) (4) (5) (7) Model 

-BEA Chase DRI Michigan MPS Wharton &n 

Original Equations 

3.2 2.9 9.5 1.0 4.14 3.5 4.0 

-.8 2.3 2.8 .1 2.1 1.1 1.3 

-.2 .2 1.2 .2 .7 .4 .4 

2.3 5.4 13.5 1.3 6.8 5.0 5.7 

1.8 11.8 23.1" .5 15.5 14.9 11.3 

-9.0 -3.8 .2 -4.6 -4.1 -12.1 -5.6 

C-E Equations 

4.2 3.9 2.7 1.1 1.8 2.1 2.6 

.5 2.2 3.0 .o 1.2 .5 1.2 

4.9 6.3 8.4 1.3 3.7 3.5 4.7 

6.3 12.8 19.1 .6 6.3 11.8 9.5 

-6.8 -3.7 -.6 -4.6 -5.6 -12.8 -5,7 
-8 6-

Table 9.1 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarter of Each Year, Investment in Equipment, 

Structures, Housing and Total Fixed, and Static Tax Loss 

as Percent of Total Fixed Investment 

Simulation 1. ITC: No Personal Tax Offset 

k: = 2ke; k' = k

S e 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Model Year Percent Changes from Baseline Static Tax 

Original Equations C-E Equations Loss as PerEquip- Struc- Hous- Total Equip- Struc- Hous- Total cent of Fixed 

- - ment tures ing Fixed ment tures ing Fixed Investment 

BEA 1973 2.8. 3.0 -,o 2.0 3.5 .8 .O 1.8 4.8 

1974 6.7 

1975 10.8 

6.7 

10.0 

-.6 5.0 

-8.3 5.0 

6.1 

9.1 

2.1 -.4 

2.5 -4.3 

3.5 

3.8 

5.4 

7.6 

1976 9.6 8.0 -10.4 3.3 8.0 1.9 -6.0 2.5 7.2 

1977 9.9 2.6 -6.2 2.3 7.8 1.4 -4.4 2.6 9 -2 

1978 7.2 .3 -1.2 3.2 8.3 1.4 -.3 4.2 7.3 

1979 8.3 -1.0 -1.1 3.5 9.9 2.1 -.l 5.3 7.5 

Chase 1973 1.5 .5 -.O .8 2.3 .1 -.l 1.1 4.8 

1994 3.2 3.1 .5 2.5 4.4 2.7 .3 3.0 5.4 

1975 5.3 6.1 .9 4.3 6.5 5.6 .4 4.6 7.6 

1976 5.5 7.8 1.3 4.8 6.7 7.5 1.6 5.3 7.2 

1977 6.2 8.9 1.7 5.3 7,6 8.7 1.4 5.9 7.2 

1978 6.6 8.5 1.6 5.6 8.2 8.2 1,5 6.2 7.3 

1979 6.8 8.8 1.0 5.7 805 8.5 .9 6.4 7 -5 

DRI 1993 2.5 2.3 .5 1.9 %,O 1.8 .6 1.0 4.8 

1994 11.0 8.9 .2 7.9 3.5 6.3 1.4 3.6 5.4 

1975 16.0 10.9 -3.8 9.3 5.1 8.0 -.1 4.3 7.6 

1976 16.0 9.4 -6.6 7.8 4.5 7.0 -1.1 3.3 7.2 

1977 15.7 7.7 -4.8 7.7 3.9 6.5 .3 3.3 7.2 

1978 15.6 6.3 -2.2 8.3 4 .O 5.6 2.2 3.8 7.3 

1979 17.7 6.3 -.5 9.8 4.6 6.0 3.6 4.6 7.5 

Michigan 1973 .8 

1974 1.3 

.1 

.2 

.o .4 

-.O .7 

1.1 

1.5 

$1 .o 

.2 -,o 

.5 

.8 

4.8 

5.4 

1975, 1.5 

1976 1.4 

.2 

.1 

-.O .8 

-.O .7 

1.7 

1,5 

.2 -.1 

.1 -.1 

.8 

.9 

7.6 

7.2 

1977 1.6 .2 -.O .8 1.8 .1 -.o .9 9.2 

1978 1.6 .1 -.O .8 1.8 .1 -.o .9 7.3 

1979 1.6 .1 .o .8 1.8 .1 -.O .9 7.5 

MPS 1973 2.5 2.6 .5 1.9 .9 3.4 .5 1.3 4.8 

1974 5.8 4.9 2.5 4.8' 2.5 4.1 2.2 2.8 5 -4 

1975 13.5 8.7 1.7 9.1 6.3 7.1 2.0 5.3 7.6 

1976 19.4 13.0 2.4 12.9 10.0 10.2 3.5 8.1 9.2 

1977 19.7 15.0 4.2 13.8 11.8 11.3 5.6 9.8 9.2 

1978 16.6 12.4 3.5 11.8 lO,.O 8.4 4.9 8.2 7.3 

1979 11.6 9.4 1.8 8.4 5.5 5.6 3.1 4.9 7 -5 

Wharton 1973 1.4 1.4 .1 1.1 .7 .7 .o .5 4.8 

1974 3.9 3.9 1.4 3.2 1.9 1.9 1.0 1.6 5.4 

1975 5.3 5.3 1.5 4.3 2.4 2.4 .7 1.9 7.6 

1976 7.3 7.3 1.4 5.5 3.4 3.4 .6 2.6 7.2 

1977 8.0 8.0 1.0 5.8 3.3 3.3 .4 2.4 7 -2 

1978 7.7 7.7 .3 5.5 3.5 3.5 .4 2.6 7.3 

1979 8.0 8.0 -.2 5.9 4.0 4.0 .8 3.2 7 -5 
-87-

Table 9.2 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarter of Each Year, Investment in Equipment, 

Structures, Housing and Total Fixed, and Static Tax Loss 

as Percent of Total Fixed Investment 

a SbUlation 2. ITC: With Personal Tax Offset; 

k' = 2k,; k' = ke 

e S 

(1 (2) (3 (4) (5) (6) (7) (8) (9) (10) (11)

Model Year Percent Changes from Baseline Static Tax 

Original Equations

Equip- Struc- Hous- Total 

- ment tures ing Fixed 

BEA 1973 1.8 3.2 .1 1.7 

1974 5.0 7.1 -.o 4.3 

1975 9.4 10.4 -5.7 5.5 

1976 9.3 8.1 -7.8 4.0 

1977 7 .a 3.6 -3.5 3.4 

1978 7.2 1.8 -.3 3.8 

1979 7.9 .3 -.3 3.8 

Chase 1973 .6 -.l -.7 .1 

1974 .4 .9 1.1 .7 

1975 3.3 3.1 1.8 2.9 

1976 3.5 4.8 1.1 3.0 

1977 3.7 5.8 1.0 3.3 

1978 3.2 5.7 -.5 2.7 

1979 2.7 5.7 -.5 2.6 

1973 1.6 1.8 .a 1.4 

1974 10.0 a .I 2.0 7.6 

1975 15.4 11.1 -1.5 9.7 

1976 15.6 9.8 -4.7 8.3 

1977 14.9 7.9 -2.9 7.9 

1978 14.5 6.2 .4 8.5 

1979 16.5 6.4 3.4 10.3 

Michigan 1973 

1974 

.7 

.a 

-.4 

-.6 

-.3 .1 

-.7 .1 

C-E 

Equipment 

1.1 

3.0 

6.8 

7 .O 

7 .4. 

7.6 

8.1 

1.1 

1.3 

3.8 

4.1 

4.5 

4.0 

3.8 

-.O 

1.9 

3.8 

3.6 

3.0 

2.9 

3.5 

.9 

1.0 

1975 

1976 

1977 

.9 

.a 

.a 

-.a 

-.9 

-1.0 

-.a 

-.g 

-1.0 

..I

-:i. 

-*-2 

1.0 

.a 

1.0 

1978 .a -.9 -1.2 -.2 1.0 

1979 .7 -.a -1.3 -.2 .9 

MPS 1973 1.0 1.1 -.6 .6 -1.1 

1974 3.9 1.7 -1.3 2.1 -1.3 

1975 9.9 4.4 -2.6 5.1 -1.0 

1976 16.2 7.7 -3.6 10.6 1.9 

1977 17.2 9.7 -1.8 10.7 4.7 

1978 15.6 9.4 1.3 10.0 6.1 

1979 12.7 9.0 2.8 9.1 6.2 

. Wharton 1973 1.0 1.0 -1.2 .3 .2 

1974 3.0 3.0 .3 2.4 .9 

1975 4.2 4.2 .7 3.2 1.3 

1976 6.4 6.4 1.5 5.0 2.6 

1977 7.3 7.3 1.2 5.4 2.8 

1978 7 .O 7.0 .o 5.0 2.9 

1979 7.1 7.2 -1.8 4.8 3.0 

Equations Loss as PerStruc- Hous- Total cent of Fixed 

tures ing Fixed Investment 

-.a .1 .4 .o 

-.4 .7 1.7 .o 

.6 -1.0 3.2 .o 

.i -2.8 2.6 .o 

-.O -.6 3.3 .o 

.5 .o 3.7 .o 

.7 .6 4.3 .o 

-.3 -.7 .2 .o 

.8 .4 .9 .o 

2.7 .4 2.5 .o 

4.5 1.2 3.3 .o 

5.7 1.0 3.6 .o 

5.6 -.4 3.1 .o 

5.3 -.4 3.1 .o 

1.3 .8 .5 .o 

5.2 3.2 3.1 .o 

7.6 2.9 4.4 .o 

7.3 2.0 3.9 .o 

7.0 2.9 3.8 .o 

6.2 4.8 4.2 .o 

6.6 7.2 5.2 .o 

-.4 -.3 .3 .o 

-.5 -.7 .2 .o 

-.7 -.9 .1 .o 

-.a -1.0 -.I .o 

-.9 -1.0 -.l .o 

-.a -1.2 -.o .o 

-.7 -1.3 -.l .o 

2.0 -.6 -.2 .o 

1.8 -1.8 -.7 .o 

3.9 -2.7 -.3 .o 

6.7 -3.4 1.4 .o 

8.9 -1.6 3.6 .o 

9.3 2.2 5.7 .o 

9.8 5.3 6.8 .o 

.2 -1.2 -.2 .o 

.9 -.4 .6 .o 

1.3 -.3 .a .o 

2.6 .7 2.1 .o 

2.8 .7 2.1 .o 

3.0 -.l 2.0 .o 

3.1 -1.4 1.9 .o 

C 
-- 

-88-

Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarter of Each Year, Investment in Equipment, 

Structures, Housing and Total Fixed, and Static Tax Loss 

as Percent of Total Fixed Investment 

Simulation 3. 10-5-3 

4 

Model Year Percent Changes from Baseline Static Tax 

Original Equations C-E Equations Equip- Struc- Hous- Total Equip- Struc- Hous- Total Loss as Percent of Fixed P 

ment tures ing Fixed ment tures ing Fixed Investment 

BEA 1973 .a 3.9 -.o 1.3 1.0 .a .o .6 1.1 

1974 2.9 9.7 -.6 3.7 2.7 2.1 -,4 1.8 3.0 

1975 6.0 14.4 -8.5 4.0 5.1 2.9 -3.8 2.1 6.0 

1976 6.2 12.8 -11.4 2.4 5.4 2.8 -6.1 1,4 7.9 

1977 5.7 7.7 -7.3 2.1 6.7 3.1 -5.0 2.3 9.5 

1978 6.5 5.6 -2.1 3.8 8.5 3.8 -.6 4.8 10.2 

1979 8.5 4.3 -1.8 4.7 10.8 4.8 -.3 6.3 10.2 

(3) (4) (5) (6) (7) (8) (9) (10) (11) 

Chase 1973 .4 .3 .3 .3 .6 .2 .2 .4 1.1 

1974 1.4 2.6 .7 1.5 2.4 2.4 .5 2.0 3.0 

1975 2.5 6.3 .9 2.9 3.9 5 .a .3 3.4 6.0 

1976 3.2 8.8 2.0 4.0 5.2 8.3 1.9 4.9 7.9 

1977 4.6 11.1 2.6 5.3 7.6 10.6 2.2 6.5 9.5 

1978 6.2 11.8 2.6 6.4 9.7 11.4 2,7 8.0 10.2 

1979 7.0 12.8 1.7 7.0 10.2 12.8 1.6 8.5 10.2 

DRI: 1973 .9 1.4 .3 -9 .3 1.2 .4 .5 1.1 

1974 5.1 7.8 1.2 4.8 1.8 6.1 1.7 2.8 3.0 

1975 10.4 12.7 .i 8.1 3.7 10.3 2.0 4.8 6.0 

1976 12.6 14.5 -2.1 8.6 3.7 11.4 1.6 4.8 7.9 

1977 15.4 17.0 -1.4 10.5 3.7 13.1 3.2 5.5 9.5 

1978 19.0 18.3 .a 13.5 4.5 14 .O 6.6 7.2 10.2 

1979 23.0 20.0 .8 16.0 5.7 16.1 8.9 8.9 10.2 

Michigan 1973 

1974 

2.3 

3.2 

.2 

.4 

.o 1.1 

.o 1.7 

2.1 

3.2 

.2 

.4 

.o 

.o 

1.0 

1.8 

1.1 

3.0 

1975 3.8 .4 -.o 1.9 3.8 .4 -.o 1.9 6.0 

1976 3.4 .4 .o 1.7 3.2 .3 .O 1.6 7.9 

1977 3.2 .3 .1 1.6 3.2 .3 .1 1.6 9.5 

1978 2.9 .2 .3 1.5 3.1 .2 .3 1.6 10.2 

1979 2.9 .2 .a 1.7 3.2 .2 .a 1.8 10.2 

MPS 1973 .a 3.5 .2 .4 .6 4.9 .3 .1 1.1 

1974 2.2 5.9 1.4 1.3 1.8 6.7 1.6 .4 3.0 

1975 5.8 8.7 1.6 2.3 4.9 8.7 1.9 1.0 6.0 

1976 9.1 13.5 2.9 3.2 8.0 14.0 3.7 1.4 7.9 

1977 10.9 16.8 5.4 4.0 10.7 17.4 6.4 2.0 9.5 

1978 10.2 15.0 5.7 4.6 6 .a 14.1 6.8 2.7 10.2 

1979 7.8 12.7 4.9 5.5 6 .O 10.7 6.0 3.6 10.2 

Wharton 1973 .a -.o .I .4 .4 -.4 .1 .1 1.1 

1974 1.9 1.1 .5 1.3 .7 -.2 .4 .4 3.0 

1975 3.1 2.0 1.3 2.3 1.3 .3 1.0 1.0 6.0 

1976 4.1 3.0 1.8 3.1 1.8 .9 1.2 1.4 7.9 

1977 5.2 4.3 1.8 4.0 2.6 1.8 1.4 2.0 9.5 

1978 6.2 4.9 1.6 4.6 3.3 2.3 1.9 2.7 10.2 

1979 7.5 5.0 1.5 5.6 4.3 3 .O 3.0 3.7 10.2 
-89-

Table 9.4. Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarter of Each Year, Investment in Equipment, 

Structures, Housing and Total Fixed, and Static Tax Loss , 

as Percent of Total Fixed Investment 

Simulation 4. Ak' = +16.264% 

Model Year Percent Changes from Baseline Static. Tax 

Original Equations C-E Equations Loss as PerEquip- Struc- Hous- Total Equip- Struc- Hous- Total cent of Fixed 

- - ment 

BEA 1973 7.1 

1974 15.7 

1975 21.3 

1976 16.6 

1977 15.3 

1978 13.2 

1979 14.9 

Chase 1973 3.6 

1974 7.3 

1975 10.4 

1976 9.7 

1977 9.5 

1978 9.6 

1979 9.7 

DRI 1973 6.1 

1974 29.4 

1975 41.5 

1976 35.5 

1977 32.9 

1978 32.7 

1979 37.6 

Michigan 1973 2.3 

1974 3.2 

1975 3.6 

1976 3.0 

1977 2.8 

1978 2.6 

1979 2.6 

MPS 1973 8.9 

1974 17.9 

1975 29.2 

1976 30.2 

1977 14.7 

1978 -18.1* 

1979 -123.2* 

Wharton 1973 9.4 

1974 14.7 

1975 16.6 

1976 15.7 

1977 15.7 

1978 16.7 

1979 18.7 

tures ing Fixed ment tures inn Fixed Investment 

-.3 .o 3,2 

-.7 -.4 7.8 

-1.9 -11.4 6.7 

-4.0 -11.6 3.7 

-6.5 -6.6 3.2 

-7.2 -.a 4.5 

-6.6 -.2 5.6 

.9 -.5 1.8 

3.6 .2 4.7 

5.6 .8 6.6 

5.9 1.4 6.4 

6.1 1.5 6.3 

5.9 1.7 6.4 

6.1 1.0 6.5 

3.1 1.0 3.9 

12.2 -.4 18.0 

15.2 -10.1 21.1 

8.6 -16.9 14.1 

4.1 -11.5 13.0 

2.5 -3.9 15.2 

3.0 -1.0 18.5 

.2 .o 1.1 

.4 -.o 1.7 

.4 -.l 1.8 

.3 -.l 1.5 

.2 -.l 1.4 

.1 -.I 1.2 

.1 -.l 1.3 

.8 

6.0 

10.4 

13.2 

12.3 

4.3" 

-12.4" 

-12.0 

-11.9 

-10.9 

-12.5 

-12.9 

-11.6 

-9.5 

.9 4.6 

5.7 12.0 

3.2 17.6 

3.2 18.4 

2.4 10.4 

-3.2" -8.7" 

-11.6* -66.1* 

.1 1.4 

2.4 5.2 

3.1 6.3 

1.3 5.2 

.3 4.9 

.6 5.6 

-.2 6.8 

8.8 1.0 -.O 4?3 7.1 

15.3 3.1 -.6 8.4 8.0 

18.8 3.6 -11.1 6.9 7.8 

13.1 1.0 -11.3 3,2 7.8 

11.4 -.4 -7.3 3.1 7,8 

12.6 -.2 -1.2 5.7 7.7 

15.1 .6 -.4 7.4 7.6 

5 .O .2 -.7 2.2 7.1 

8.7 2.9 -.2 5.1 8.0 

10.6 5.2 .5 6.6 7.8 

9.9 5.7 1.6 6.5 7.8 

10.2 5.9 1.2 6.5 7.8 

10.5 5.7 1.5 6.8 7.7 

10.7 6.1 .8 6.9 7.6 

2.3 2.0 1.0 1.8 7.1 

8.7 5.7 2.4 6.4 8.0 

11.2 5.5 -1.1 6.4 7.8 

8.3 1.7 -3.0 3.6 7.8 

7.0 .o .9 3.6 7.8 

7.1 -.l 4.5 4.7 7.7 

8.0 .6 5.9 5.5 7.6 

2.4 .2 .o 1.1 7.1 

3.4 .4 -.o 1.8 8.0 

3.7 .4 ' -.l 1.8 7.8 

2.9 .2 -.l 1.4 7.8 

3.0 .2 -.l 1.4 .7.8 

2.9 .1 -.l 1.4 7.7 

2.9 .1 0.1 1.4 7.6 

1.5 .3 .7 1.0 7.1 

4.9 1.6 3.5 3.7 8.0 

12.2 3.5 2.8 7.5 7.8 

17.2 5.2 4.9 10.9 7 .a 

18.4 5.9 7.6 12.4 7.8 

15.1 3.2 6.2 9.8 7.7 

8.6 .2 3.3 5.1 7.6 

8.1 -13.0 .1> ;6 7.1 

11.0 -14.8 1.9 2.5 8.0 

11.3 -14.6 2.0 2.5 7 .a 

10.7 -16.0 .3 1.7 7.8 

10.7 -16.5 .o 1.7 7.8 

11.8 -15.1 1.1 2.6 7.7 

13.4 -13.3 2.1 3.9 7.6 

*Results based on M1 values were 17.2, 3.0, --4.2, and 7.8, for 1978, 

and -6.6, 2.9, -3.0, and -3.3 for 1979. 
-90-

Table 9.5 

(1) (2) (3)

Medel Year 

Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarter of Each Year, Investment in Equipment,

Structures, Housing and Total: Fixed, and Static Tax Loss . as Percent of Total Fixed Investment 

Simulation 5. Au' = -9.815% 

(4) (5) (6) (7) (8) (9) (10) (11)

Percent Changes from Baseline Static Tax 

Original Equations C-E Equations Loss as PerEquip- Struc- Hous- Total Equip- Strue- Hous- Total cent of Fixed 

- ment tures ing Fixed ment tures inn Fixed Investment

BEA 1973 

1974 

1975 

1976 

1977 

1978 

1979 

Chase 1973 

1974 

1975 

1976 

1977 

1978 

1979 

DRI 1973 

1974 

1995 

1976 

1977 

i978 

1979 

Michigan 1973 

1974 

1975 

197 6 

1977 

1978 

1979 

1973 

1974 

1975 

1976 

1977 

1978 

1979 

Wharton 1973 

1974 

1975 

1976 

1977 

1978 

1979 

2:4 3.3 -.o 1.9 

5.9 7.7 -.6 4.8 

8.8 10.4 -8.2 4.5 

6.7 9.2 -9.3 2.0 

4.3 .8 -5.4 .5 

3.7 -1.0 -.7 1.4 

4.9 -1.2 -.7 1.9 

3.5 1.4 -.4 1.9 

5.5 4.6 .7 4.1 

6.0 7.1 .3 4.7 

5.3 7.6 .7 4.7 

5.2 7.6 1.2 4.4 

5.4 7.0 1.2 4.5 

5.6 7.2 .7 4.7 

2.0 2.6 .8 1.8 

5.7 7.8 1.6 5.2 

6,f 7*6 -1.3 4.5 

3.5 5.0 -2.2 2.1 

3.3 4.4 .9 2.8 

3.9 4.6 2.7 3.7 

4.9 5.6 2.6 2.5 

2.9 .9 .O 1.6 

5.5 2.2 -.4 3.2 

7.1 2.5 -4.0 2,9 

5.3 1.7 -4.9 1.5 

4..4 1.0 -3.5 1.3 

4.9 1.0 -.O 2.6 

6.4 1.7 .2 3.5 

5.0 .8 -.6 2.3 

7.8 4.1 .2 5.1 

8.2 7.0 -.3 5.6 

7.4 7.6 .7 5.4 

7.8 7.5 .9 5.5 

8.3 6.7 1.1 5.8 

8.5 7.3 .6 6,1 

.7 1.6 ,9 2?1 

1.8 4.2 245 2.6 

1.9 3.8 1.0 2.1 

.8 2.5 .5 1.3 

-9. 2.5 2.1 1.7 

1.5 2.8 3.0 2-2 

1.9 3.5 249 2.5 

-1.0 -.l -.o -.5 -1.1 -.I -.o -.5 

-1.3 -.1 .o -.7 -1.4 -.a .o -.7 

-1.8 -.1 .1 -.8 -2.0 -.l .1 -1.0 

-2.2 -.1 .2 -1.0 -2.3 -.l .2 -1.1 

-2.0 -.1 .2 -.9 -2.1 -.1 .2 -.9 

-1.5 .o .3 -.6 -1.6 .O .3 -.6 

-1.3 .2 .6 -.4 -1.5 .1 ,6 -.5 

1.2 2.8 .5 1.4 .7 3.8 .5 1.4 

3.0 4.8 2.3 3.2 2.0 4.9 2.3 2.8 

6.0 6.5 1.8 5.0 4.6 5.7 2.1 4.2 

7.2 8.8 2.7 6.2 6.1 8.3 3.4 5.8 

6.7 9.3 3.8 6.3 6.7 8.9 4.6 6.5 

4.9 7.0 2.5 4.7 5.0 6.1 3.0 4.6 

2.8 4.7 .9 2.7 1.5 3.3 .9 1.7 b 

.s .5 .1 .4 .2 .2 .o .2 

1.4 1.5 .5 1.2 .7 .7 .4 .6 

2.1 2.0 1.0 1.7 1.0 1.0 .7 .9 

2.0 1.9 .9 1.7 1.0 1.0 .4 .8 

2.0 1.9 .8 1.6 1.0 1.1 .4 .8 

2.1 1.8 .5 2.1 1.1 1.0 .7 .9 

2.6 2.2 .9 2.0 1.5 1.2 1.7 1.5 

5.7 

6.1 

6.9 

6.4 

6.5 

6.9 

6.9 

5.7 

6.1 

6.7 

6.4 

6.5 

6.9 

flog 

5.4 

6.1 

6.7 

6.4 

6.5 

6.9 

6.9 

5.7 

6.1 

6.7 

-6.4 

6.5 

6.9 

6.9 

5.7 

6.1 

6.7 

6.4 

6.5 

6.9 

6.9 

5.7 

6.1 

6.7 

6.4 

6.5 

6.9 

6.9 
-91-

Table 9.6 

. (1) (2)

Model Year 

* 

- BEA 1973 

1974 

1975 

1976 

1977 

1978 

1979 

Chase 1973 

1974 

1975 

1976 

1977 

1978 

1979 

DRI 1973 

1974 

1975 

1976 

1977 

1978 

1979 

Michigan ' 1973 

1974 

1975 

1976 

1977 

1978 

1979 

MPS 1973 

1974 

1975 

1976 

1977 4 1978 

1979 

Wharton 1973 

1974 

1975 

1976 

1977 

1978 

1979 

Full Model Simulations., Percent Changes from Baseline, 

Fourth Quarter of Each Year, Investment in Equipment,

Structures, Housing and Total Fixed, and Static Tax Loss 

as Percent of Total Fixed Investment 

Simulation 6. OTA Alternative 

(3) (4) (5) (6) (7) (8) (9) (IO)

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Hous- Total Equip- Struc- Hous- Total 

ment tures inn Fixed ment tures ing Fixed 

1:8 2.4 -.o 1.4 2.2 .7 .o 1.2 

4.4 5.3 -.5 3.4 4.2 1.8 -.4 2.5 

6.4 6.8 -6.1 3.0 5.4 2.0 -3.6 2.1 

4.7 4.1 -7.1 1.0 3.8 1.2 -4.4 .8 

2.8 -.5 -4.0 ' .o 3.0 .6 -3.0 .6 

2.4 -1.4 -.2 .8 3.3 .6 .2 1.8 

3.2 -1.5 -.3 1.1 4.2 .9 .4 2.4 

.9 .4 .1 .5 1.3 .2 .1 .6 

2.0 2.2 .5 1.7 3.0 2.0 .3 2.1 

2.8 4.4 .7 2.6 3.5 4.2 .2 2.8 

2.7 5.0 1.3 2.7 3.5 4.8 1.3 3.1 

2.7 5.2 1.1 2.7 3.7 5.1 .8 3.1 

2.9 4.7 .9 2.7 3.9 4.5 .9 3.1 

2.9 4.5 .4 2.6 3.9 4.4 .4 3.1 

1.3 1.3 .4 1.0 .5 1.1 .4 .6 

6.8 6.9 .9 5.4 2.1 5.1 1.6 2.7 

10.6 9.5 -1.4 7.0 3.4 7.3 1.1 3.7 

9.3 7.7 -4.3 4.9 2.4 6.2 -.3 2.5 

8.3 6.2 -2.6 4.5 1.6 5.6 .8 2.2 

8.4 5.4 .6 5.5 1.5 , 5.3 3.4 3.1 

9.6 5.6 2.3 6.5 2.7 6.2 5.0 4.1 

.7 .1 .o .4 .5 .o .o .3 

1.0 .2 .O .6 1.0 .1 .1 .6 

1.2 .2 .1 .6 1.2 .1 .1 .6 

1.1 .1 .1 .6 1.0 .l .1 .6 

1.0 .1 .1 .6 1.1 .I .1 .1 

1.0 .1 .2 .5 1.0 .1 .2 .6 

1.0 .1 .4 .6 1.1 .I .4 .7 

1.3 2.3 .2 1.3 .6 3.1 .3 1.1 

3.2 3.9 1.5 3.0 1.7 3.8 1.5 2.1 

6.8 5.5 1.3 4.9 4.1 4.4 1.6 3.5 

8.6 7.7 2.1 6.5 5.7 6.8 2.7 5.1 

8.3 8.4 3.4 6.8 6.5 7.4 4.1 5.9 

6.5 6.4 2.6 5.4 5.1 4.8 3.1 4.4 

4.0 4.2 1.2 3.3 1.8 2.3 1.3 1.8 

.9 .1 .1 .4 .6 -.2 .1 .2 

2.0 1.2 .6 1.4 1.1 .3 .5 .8 

2;7 1.6 .9 1.9 1.5 .6 .7 1.1 

2.6 1.6 .7 1.8 1.5 .7 .4 1.0 

2.7, 1.8 .7 1.9 1.6 .8 .4 1.0 

3.0 1.8 .6 2.0 1.7 07 -8 1.2 

3.5 2.3 .7 2.4 2.1 1.0 1.6 1.7 

; 

(11)

Static Tax 

Loss as Percent of Fixed 

Investment 

1.1 

2.7 

3.6 

3.5 

3.2 

2.9 

2.7 

1.1 

2.7 

3.6 

3.5 

3.2 

2.9 

2.7 

1.1 

2.7 

3.6 

3.5 

3.2 

2.9 

2.7 

1.1 

2.7 

3.6 

3.5 

3.2 

2.9 

2.7 

1.1 

2.7 

3.6 

3.5 

3.2 

2.9 

2.7 

1.1 

2.7 

3.6 

3.5 

3.2 

2.9 

2.7 
-92-

Table 10 Static Tax Losses (Without Feedback), Fourth Quarter of Each Year 

(1) 

Year 

1, 1973-IV 

2, 1974-IV 

3, 1975-IV 

4, 1976-IV 

5, 1977-IV 

6, 1978-IV 

7, 1979-IV 

1973-IV 

2, 1974-IV 

3, 1975-IV 

4, 1976-IV 

5, 1977-IV 

6, 1978-IV 

7, 1979-IV 

(2) (3) (4) (5) (6) (7) 

Simulations 

ITC : ITC with 10-5-3 Ak' 31 Au' = OTA 

k',=2ke; Personal +16 e 264% -9.815% Alterki =ke T;ue Off- native 

set 

Billions of Current Dollars 

9.8 0 2.3 14.5 11.5 2.3 

10.7 0 5.9 15.9 12.2 5.4 

15.1 0 12.1 15.7 13.5 7.3 

17.2 0 18.8 18.5 15.3 8.2 

19.9 0 26.2 21.5 18.0 9.0 

23.6 0 32.7 24.7 22.3 9.5 

26.4 0 35.9 26.7 24.4 9.4 

Billions of 1972 Dollars 

9.0 0 2.1 13.3 10.5 2.1 

8.9 0 4.9 13.1 10.0 4.4 

11.6 0 9.3 12.1 10.3 5.6 

12.6 0 13.8 13.6 11.2 6.0 

13.7 0 18.1 14.9 12.4 6.2 

15.0 0 20.9 15.8 14.2 6.1 

15.5 0 21.0 15.6 14.3 5.5 
-93-

GLOSSARY 

-CCCA Capital Consumption Adjustment, Corporate 

CTR Federal Corporate Tax Receipts 

D Tax Depreciation Allowances, Current Law 

DA Tax Depreciation Allowances, 10-5-3 

DB Tax Depreciation Allowances, OTA Alternative 

E Investment Expenditures on Producers' Durable Equipment, Constant Dollars 

E$ Investment Expenditures on Producers' Durable Equipment, Current Dollars 

IjS Producers' Investment Expenditures for Sector j , Current Dollars 

ke Rate of Investment Tax Credit, Equipment 

k Rate of Investment Tax Credit, Structures 

S 

52 Effective Rate of Investment Tax Credit for Sector j j 

Le Tax Life of Equipment 

Tax Life of Structures

LS 

-

PCCA Capital Consumption Adjustment, Proprietors 

PTR Federal Personal Tax Receipts 

S Corporate Share of Nonresidential Business Capital Consumption Allowances 

S Investment Expenditures on Producers' Structures, Constant Dollars 

SS Investment Expenditures on Producers' Structures, Current Dollars 

TDj 

Tax Depreciation for Sector j 

U Rate of Federal Business Income Taxation 

I 
-94-

REFERENCES 

Bischoff, C.W. 1971. "Business Investment in the 1970s: A Comparison of Models." 

Brookings Papers on Economic Activity,l971-1: 13-63. 

Clark, P.K. 1979. "Investment in the 1970s: Theory, Performance and Prediction." 

Brookings Papers on Economic Activity, 1979-1: 73-124. 

Coen, R. M. 1968. "Effects of Tax Policy on Investment in Manufacturing."

American Economic Review 58 (May) : 200-11. 

. 1969. "Tax Policy and Investment Behavior: Comment." American 

Economic Review 59 (June): 370-79. 

Eisner, R. 1969a. "Investment and the Frustrations of Econometricians.I1 

American Economic Review 59 (May): 50-64. 

. 1969b. "Tax Policy and Investment Behavior : Comment 'I American 

Economic Review 59 (June) : 379-88. 

. 1978. Factors in Business Investment. Cambridge: Ballinger for 

the National Bureau of Economic Research. 

and P. J. Lawler. 1975. "Tax Policy and Investment: An Analysis of 

Survey Responses." American Economic Review 65 (March): 

206-12 e 

and M. I. Nadiri. 1968. "On Investment Behavior and Neoclassical 

Theory." Review of Economics and Statistics 50 (August) : 

369-82. . 1970. "Once More on that 'Neoclassical Theory

of Investment Behavior. 'If Review of Economics and Statistics 

52 (May): 216-22. 

and R. H. Strotz. 1963. "Determinants of Business Investment." 

in Commission on Money and Credit, Impacts of Monetary

Policy: 60-337. Englewood Cliffs, N.J.: Prentice-Hall. 

From, G. ed. 1971. Tax Incentives and Capital Spending. Washington, D.C.: 

Brookings, including papers by R.E. Hall and D.W. Jorgenson,

C.W. Bischoff, R. M. Coen, L.R. Klein and P. Taubman, and 

discussion by F. M. Fisher and A.C. Harberger. 

Green, R. J. 1980. "Investment Determinants and Tax Factors in Major

Macroeconometric Models.It In G. M. von Furstenberg, Government and Capital Formation.,-pp. 337-381. Cambridge:

Ballingera 

Hall, R.E. and D.W. Jorgenson. 1967. "Tax Policy and Investment Behavior." 

American Economic Review 57 (June):391-414. 
-9sHendershott, P.H. and S-C Hu. 1980. "The Relative Impactsof Various Proposals 

to Stimulate Business Investment." In G.M. von Furstenberg, 

The Government and Capital Formation, pp.321-336, Cambridge: Ballinger. 

Hirsch, A.A., S.H. Hymans and H.T. Shapiro. 1978. "Econometric Review of 

Alternative Fiscal and Monetary Policies, 1971-75.'' 

Review of Economics and Statistics 60 (August):334-345. 

Joint Economic Committee. 1978. Economic Stabilization Policies: The 

Historical Record, 1962-76, Including "Data Resources, Inc. - Fiscal Policy: The Scoreboard Between 1962 and 1976," and 

"Wharton Econometric Forecasting Associates, Inc. - A Study

in Counter-Cyclical Policy," and Comments by Arthur M. Okun 

and Alan Greenspan. 

Jorgenson, D. W. 1963. "Capital Theory and Investment Behavior.'I 

American Economic Review 53 (May): 247-59. 

Kilpatrick, R.W. 1977. Private Memoranda of June 16, June 30, July 15, and 

August 4; from the Office of Management and Budget, on 

"Simulations of Investment Tax Incentives in the Chase and 

Wharton Models," "A Correction to My Previous Memo on 

Investment Tax Incentives," "The Effect of Tax Changes on 

the User Cost of Capital in Wharton, Chase, and DRI," and 

"Investment Tax Incentives and Capacity Utilization in the 

Chase Model." (Authorized for private use only.) 

Klein, L.R. and E. Burmeister, ed. 1976. Econometric Model Performance, 

ComparatJve Simulation Studies of the U.S. Economy. University 

ot Pennsylvania Press. 

Kopcke, R. W. 1977. "The Behavior of Investment Spending During the Recession 

and Recovery, 1973-76." New England Economic Review (November/

December): 5-41. 

. 1977. "The Outlook for Investment Spending to 1980." New England 

Economic Review (November/December): 42-59. 

McClain, D. 1979. "The Recent Tracking Performance of Business Fixed 

Investment Equations in Four Large-Scale Econometric Models." 

Unpublished, Private Memorandum of April 16 at Council of 

Economic Advisers. 

McKee. M- 1978 and 1979. Unpublished Private Memoranda of December 8, 1978, 

December 27, 1978 entitled "The Ponies,If ad Unpublished,

Private Memorandum of January 26 , 1979, entitled "Determinants 

of Investment," all written at the Council of Economic Advisers. 

McNees, S.K. 1979. "The Forecasting Record for the 1970s." New England

Economic Review (September/October): 1-21. 

Nerlove, M. 1966. "A Tabular Survey of Macro-Econometric Models." 

International Economic Review 7 (May): 127-75. 

Taubman, P. and T. J. Wales. 1969. "The Impact of Investment Subsidies 

in a Neoclassical Theory of Investment Behavior.If Review 

of Economics and Statistics 51 (August): 287-297. 
Appendix A. A Detailed Look at MPS Results Under Different Monetary 

Regimes 

Simulation of the original investment equipment equation in the MPS model 

indicated very large effects for tax incentives. Addition of some 10 percent 

to the investment tax credit for equipment and for structures brought an increase of 15.1 percent in equipmeneexpenditures by 1977-IV. Our preferred 

revised equation, using a constant term and p', a rental price of capital 

variable untainted by dividend or earning-price ratios, knocked that increase 

down to only 2.8 percent. The full model MPS simulations were generally consistent 

with the single equations,with results depending somewhat,however,on the assumed 

monetary constraints. With the relatively less responsive policy of keeping M-1 at 

its baseline level, the full model simulation indicated a slightly lesser 

increase in investment, 14.4 percent for the original specifications when there was 

no personal tax offset (Table 1.5-Ml, simulation l), but a larger response, 20.2 

percent, with personal taxes increased, quarter by quarter, by the amount of 

tax reduction from the increased investment tax credit (simulation 2). 

With the more flexible policy of holding unborrowed reserves at their 

baseline values,equipment spending was up by all of 19.7 percent by 1977-bV, 

with no personal tax offset. With the personal tax offset, the unborrowed 

reseme constraint offered the somewhat lesser equipment increase of 

17.2 percent, as shown in Table 1.5. 

Full nodel simulation with our preferred equipment investment equation 

in all cases indicated positive feedback to the original investment stimulus. 

But in all cases the end result was considerably less additional investment 

than with the original model equations. Increases in equipment spending 

ranged from 4.7 percent to 11.8 percent, depending variously upon the 

monetary regime and personal income tax rates. 
Differences between the original model equation and our preferred equation 

in the case of structures were much less marked. Whirle simulation of the investment equation itself indicated a slightly higher stimulus with our equation, 

6.8 percent as against 5.7 percent, the full model simulations all resulted 

in lesser increases in our preferred equations. The various combinations of 

monetary and personal tax.rigimes added varied and sometimes substantial effects. 

All this suggests that investment tax incentives aside, the MPS model can 

produce powerful results for investment with either explicit changes in monetary 

policy or implicit changes following from the response to variation in personal 

income tax rates. 

Full model simulations over 28 quarters, from 1973-1 to 1979-IV,indicated 

first that, except for simulation 2, involving an offsetting increase in 

personal income taxes, the stimulatory effects on nonresidential equipment and 

structures investment were largely if not entirely offset by negative effects 

on housing or, generally, residential investment. Further, therewas distinct 

evidence of cyclical movement or ultimate negative reaction to the original stimuli. 

Qith ICL held at baseline values, as shown in Table 3.5-Ml, 

full model simulation 3 (10-5-3) with the originally speciffed investment 

equation brougkincreases of 5.7 percent in equipment spendink by the nineteenth 

quarter and 10.5 percent in structures spending by the eighteenth quarter. By 

1979-IV, the twenty-eighth quarter, however, equipment spending was actually 

.8 percent below baseline and nonresidential structures only 1.8 percent above 

it. Housing investment started down with the very first quarter of the 

* simulation and was off by 17.1 percent by the fourth quarter of 1979. 

With our preferred, revised investment equations, equipment investment 

was off even more, 4.9 percent, by the end of the simulation period. Nonresidential structures investment was up only one percent and housing investment was down by 18.4 percent. 
-98-

Looking at stocks, we note that by the end of the 28.-quarter 

simulation, total equipment was up only 2.2 percent with the original 

model equatiorsand structures up 2.5 percent, while the stock of housing 

was down by 1.9 percent. Results on stocks were similar with our preferred 

equations, except that the stock of equipment was up even less, by only 

.4 percent. 

Our simulation 4, involving a 16.264 percent increase in the investment tax credit as the present value equivalent replacement for 10-5-3, 

resulted in much larger initial increases in equipment spending with baseline values of Ml: 30.5 percent with the original model equation and 10.9 

percent with our preferred equations, after 15 and 16 quarters respectively. 

Again, however, these increases were quite reversed by the end of the 

simulation period, falling to -6.6 percent in equipment spending with 

the original model equation and +.lpercent with our preferred equations. 

Again, housing investment was down by somE 2 percent. 

The present value equivalent change in the corporate tax rate, a 

reduction of 9.815 percentage points, had a much lesser effect in stimulating investment in equipment and structures, leaving both spending and 

capital stock essentially unchanged by the end of the simulation period. 

It brought some reduction in investment in housing with the MI. monetary 

constraint but a slight increase in housing when unborrowed reserves were 

maintained at baseline levels. 

The OTA alternative brought equipment and structures investment to 

peaks of some 5 percent above baseline by the fifteenth and seventeenth 

quarters with Ml constrained at baseline levels, but left investment in 

each case close to baseline by 1979-IV. Investment was up 1.4 percent for 

equipment and .6 percent for nonresidential structures with the original 

model specifications, but off 2.3 percent and .4 percent respectively, 

with our preferred equations. Again with either set of equations housing 

investment was down significantly. 
-99-

Simulations in which unborrowed reserves rather than M-1 were kept at 

their baseline values generally resulted in larger peaks and larger end values 

for investment in equipment and in structures and also permitted expansion in 

investment in housing. Holding unborrowed reserves at baseline values in fact 

permitted a substantially accommodative monetary policy. Except where therewere 

offsetting increases in personal income taxes, results, as shown in Tables 4.5 and 

4.5-M1, also included substantially higher prices as measured by the GNP implicit 

price deflator; The expansion in both residential and nonresidential investment was 

generally considerably larger with the original model equations than with our 

preferred equations. With our preferred equations, increased investment was always 

considerably less than the original amount of tax reduction. Thus, for 

example, even the 16.264 percent increase in the investment tax credit in 

simulation 4 brought an increase in equipment investment of only 8.6 percent 

and in the stock of equipment of only 9.0 percent by 1979-IV (Table 3.5). 

The MPS model broke down or "exploded" in simulation 4 (the 16.264 percent 

increase in the investment tax credit) with the original model equations and 

unborrowed reserves kept at their baseline value. After a very great increase 

in equipment spending, reaching 32.6 percent above baseline by the fourteenth 

quarter, a sharp cycle developed. By 1979-IV, the simulation indicated 

equipment spending 123.2 percent below baseline, thus actually negative, and 

falling sharply! What apparently happened was that the model equations could 

not sensibly accommodate the big increase in orders for equipment, generating 

a huge increase in the unfilled order variable. This in turn generated first 

a decline in the rate of growth and then an absolute decline in expenditures 

for equipment. But with unfilled orders rising as new orders exceeded expenditures, unfilled orders continued to rise, driving expenditures down further 

and in turn driving unfilled orders up still higher. Thus, the equations 
-100-

eventually generated negative expenditures for equipment, with unfilled orders 

still rising, despite the sharp decline in new orders brought on by the 

accelerator effects of falling business product. By the end of the period of 

simulation, expenditures for producers durables, already negative, seemed to 

be in an accelerating fall with no end in sight. 

Looking at absolute changes in Table 5.5-Ml, we find that with MI, kept 

at its baseline values, total fixed investment, including residential as well as 

nonresidential, was actually below baseline 197Y-IV both for the original equations 

and our preferred investment equations, in all of the simulations except number 2, 

in which personal income taxes were raised, and in simulation 1 with the original 

equation where it was virtually unchasged. With our preferred equations, gross national product was above baseline and the GNP price deflator below in all simulations 

except number 2. The unemployment rate was higher than baseline in all 

simulations with our preferred equations except number 2. Unemployment was also 

somewhat higher in simulations with the original model investment equations, 

except in simulations 2 and 4. 

With the accommodative monetary policy resulting from holding unborrowed 

reserves at their baseline values, total fixed investment was above baseline by 

1979-IV except in the case of simulation 4, where as we have already noted, 

the model essentially fell off the track. In this set of simulations, except where 

the model exploded and in the case of the personal income tax increase (shulation 2) the GNF price deflator was distinctly raised for both equations. In the 

original model equations, omitting the exceptions indicated, the deflator was 

raised from 7.7 to 14.7 percent by 1979-IV. With our revised equations, the price 

inflation appearedeven greater, the GNP implicit price deflator rising by 

values between 10.8 percent and 20.1 percent. With either set of equations, 

the highest price inflation was generated with 10-5-3. The simulations under 

the monetary regime with baseline unborrowed reserves in all cases showed increases 

in GNP and decreases in unemployment (Table 5=5) again except for-the 

"exploding" simulation of the increased investment credit with the original model 

equations. 
-101-

Appendix B, Estimated Increases in Tax Depreciatton Charges, Corporate and 

Noncorporate, 10-5-3 and OTA Alternative Compared* 

10-5-3 OTA Alternat ivc 

Corporate Noncorporate Corporate Noncorporntc 

[s * (DA-D)] [(I-s) * (D,-D)~ [ s * (DB - D)J I (1-5)

*(D~-D)I 

1973.1 2.88258 .56860 2.95524 .58293 

2.38258 .56550 2.95524 .55293 

2.88258 .55850 2.95524 .58293 

2.88258 .Se850 2.95524 -58293 

1974.1 9.04800 1.85845 8.07129 1.55783 

9.O4800 1.85845 8.07129 1.65783 

9.04800 1.85845 a. 07129 1.65783 

9.04800 1.85845 8.07129 1.55783 

1975.1 19.73724 4.04903 11.34573 2.32754 

19.73724 4.04903 11.34573 2.32754 

19.73724 4.04903 11.34573 2.32754 

19.73724 4.04903 11.34573 2.32754 

1976.1 31.19841 6.35155 12.83172 2.51547 

31.19841 6.35155 12.83172 2.61647 

31.19841 6.35155 12.83172 2.61547 

31.19841 6.35156 12.83172 2.51547 

1977.1 43.81409 a. 89531 13.90703 2.82378 

43.81409 9.89631 13.90703 2.82378 

43,81409 8.89531 13.90703 2.82378 

43.81409 8.89631 13.90703 2.82378 

1978.1 54.78847 11.09855 14.56595 2.95084 

54.78847 11.09855 14.55595 2.95084 

54.78847 11.0985s 14.56596 2.95084 

197 8.4 54.78847 11.09855 14.55695 2.95084 

1979.1 62.72022 12.70529 14.77514 2.99301 

62.72022 12.. 70529 14.77514 2.99301 

62.72022 12.70529 14.77514 2.99301 

1979.4 62.72022 12.70529 14.77514 2.99301 

- - -

*Projections for 1981 to 1987 would be more than double the figures here, or roughly 

(. 110 percent higher. 
Appendix C. -102-

Table 11.1 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

BEA 

(1) (2) (3) (4) (5) (6) (7) (8) 

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- S trucSimulations Year ment tures Housing merit tures Housing 

1. ITC: no personal tax 

offset 

k& = 2ke; k: = ke 

1-197 3 2.8 3.0 -.O 3.5 .a .o 

2-1974 6.7 6.7 -.6 6.1 2.1 -.4 

3-1975 10.8 10.0. -8.3 9.1 2 .5 -4.3 

4-1976 9.6 ' 8.0 -10.4 8 .O 1.9 -6.0 

5-1977 7.9 2.6 -6.2 7-8 1.4 -4.4 

6-1978 7.2 .3 -1.2 8.3 1.4 -.3 

9-1979 8.3 -1.0 -1.1 9.9 2.1 -0 1 

2. ITC: with personal 

tax offset 

k' 

e = 2ke' - k' 

s = k 

e 

1-197 3 1.8 3.2 .1 1.1 -.8 .1 

2-1974 5.0 7 -1 -.O 3 .O -.4 .7 

3-1995 9.4 10.4 -5.7 6.8 .6 -1.0 

4-1976 9.3 8.1 -7.8 7 .O .1 -2.8 

5-1977 7.8 3.6 -3.5 7.4 -.o -.6 

6-1978 7.2 1.8 -.3 7.6 .5 .o 

7-1999 7.9 .3 -.3 8.1 .7 .6 

3. 10-5-3 

1-197 3 .8 3.9 -.0 1.0 .8 .o 

2-1974 2.9 9.7 -.6 2.7 2.1 -.4 

3-1975 6 .O 14.4 -8.5 5.1 2.9 -3.8 

4-1976 6,2 12.8 -11.4 5.4 2.8 -6.1 

5-1977 5.7 7.7 -7.3 6.7 3.1 -5.0 

6-1978 6.5 5.6 -2.1 8.5 3.8 -.6 

7-1979 8.5 4.3 -1.8 10.8 4.8 -.3 
-103-

Table 11.1 Full Model Simulations, Percent Changes from Baseline, 

(continued) Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

BEA 

(1) (2) (3) (4) (5) (6) (7) (8)

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- Struc- , 

Simulations -Year ment tures Housing ment tures Housing 

4. Ak; = +16.264% 

'-114 

1-1973 7.1 -.3 .o 8.8 1.0 -.O 

2-1974 15.7 -.7 -.4 15.3 3.1 -.6 

3-1975 21.3 -1.9 18.8 3.6 -11.1 

4-1976 16.6 -4.0 -11.6 13.1 1.0 -11.3 

5-1977 15.3 -6.5 -6.6 11.4 -.4 -7.3 

6-1978 13.2 -7.2 -.8 12.6 -.2 -1.2 

7-1979 14.9 -6.6 -.2 15.1 .6 -.4 

5. AU' 0 -9.815% 

1-1973 2.4 3.3 -.O 2.9 .9 .o 

2-1974 5.9 7.7 -.6 5.5 2.2 -.4 

3-1975 8.8 10.4 -8.2 7.1 2.5 -4 .O 

4-1976 6.7 7.2 -9.3 5.3 1.7 -4.9 

5-1977 4.3 ,8 -5.4 4.4 1.0 y3.5 

6-1978 3.7 -1.0 -.7 4.9 1.0 -.O 

7-1979 4.9 -1.2 -.7 6.4 1.7 .2 

6. OTA Alternative 

~ 1-1973 

2-1974 

1.8 

4.4 

2.4 

5.3 

-.O 

-.5 

2.2 

4.2 

.7 

1.8 

.o 

-.4 

3-1975 6.4 6.8 -6.1 5.4 2.0 -3.6 

4-1976 4.7 4,1 -7-1 3.8 1.2 -4.4 

5-1977 2.8 -.5 -4.0 3.0 .6 -3.0 

6-1978 2.4 -1.4 -.2 3.3 .6 .2 

7-1979 3.2 -1.5 -.3 4.2 .9 .4 
-104-

Table 11.2 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarters of Each Year, Investment in Equipment,

Structures and Housing 

Chase 

(1) (2) (3) (4) (5) (-61 (79 (8)

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- strucSimulations ment tures Housin~ ment tures Housing 

1. ITC: RO personal tax 

offset 

k: = 2ke; k: = ke 

1-1973 1.5 *5 -.O 2.3 e1 -.1 

2-1974 3.2 3.1 -5 4.4 2.7 .3 

3-1975 5.3 6.1 .9 6.5 5.6 .4 

4-1976 5.5. 7.8 1.3 6.7 7.5 1.6 

5-1977 6.2 8.9 1.7 7.6 8.7 1.4 

6-1978 6.6 8.5 1.6 8.2 8.2 1.5 

7-1979 6.8 8.8 1.0 8.5 8.5 .9 

2. ITC: with personal.

ea% offset 

1-1973 .6 -.l -.7 1.1 -0 3 -.7 

2-1974 .4 .9 1.1 1.3 .8 .4 

3-197 5 3.3 3.1 1.8 3.8 2.7 .4 

4-1976 3.5 4.8 1.1 4.1 4.5 1.2 

5-1977 3.7 5.8 1.0 4.5 5.7 1.0 

6-1978 3.2 5.7 -.5 4.0 5.6 -.4 

7-1979 2.7 5.7 -.5 3.8 5.3 -.4 

3. 10-5-3 

1-1973 .4 .3 .3 .6 .2 .2 

2-1974 1.4 2.6 .7 2.4 2.4 .5 . 3-1975 2.5 6.3 .9 3.9 5.8 .3 

4-1976 3.2 8.81 2.0 5.2 8.3 1.9 

5-1977 4.6 11.1 2.6 7.6 10.6 2.2 

6-1978 6.2 11.8 2.6 9.7 11.4 2.7 

7-1979 7.0 12.8 1.7 10.2 12.8 1.6 
-105-

Table11.2 Full Model Simulations, Percent Changes from Baseline, 

(continued) Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

Chase 

Simulations -

Year

4. AI$ = +16.264% 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-197 9 

5. Au' = -9.815X 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

6. OTA Alternative 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

Percent Changes from Baseline 

Original Equations 

Equip- Strucment tures Housing 

3.6 

7 .'3 

10.4 

9.7 

9.5 

9.6 

9.7 

3.5 

5.5 

6.0 

5.3 

5.2 

5.4 

5.6 

.9 

2.0 

2.8 

2.7 

2.7 

2.9 

2.9 

.9 -.5 

3.6 .2 

5.6 .8 

5.9 1.4 

6.1 1.5 

5.9 1.7 

6.1 1.0 

1.4 -.4 

4.6 .7 

7.1 .3 

7.6 .7 

7.6 1.2 

7.0 1.2 

7.2 .7 

.4 .1 

2.2 .5 

4.4 .7 

5.0 1.3 

5.2 1.1 

4.7 .9 

4.5 .4 

C-E 

Equipment 

5.0 

8.7 

10.6 

9.9 

10.2 

10.5 

10.7 

5.0 

7.8 

8.2 

7.4 

7.8 

8.3 

8.5 

1.3 

3.0 

3.5 

3.5 

3.7 

3.9 

3.9 

Equations 

S tructures Housing 

.2 -.7 

2.9 -.2 

5.2 

5.7 1.6 

5.9 1.2 

5.7 , 1.5 

6.1 .a 

.8 -.6 

4.1 .2 

7.0 -.3 

7.6 .7 

7.5 - .9 

6.7 1.1 

7.3 .6 

.2 .1 

2.0 .3 

4.2 .2 

4.8 1.3 

5.1 .8 

4.5 .9 

4.4 .4 

.5 
-- 

-106-

Table 11,3 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

DRI 

(1) (2) (3) (4) (5) (-61 (7) (8) 

Percent Changes from Baseline 

Original Equations 

Equip- StrucSimulations Year ment tures Housiaq 

1. ITC: no personal tax 

offset 

ki - 2ke; ki = ke 

1-1973 

2-1974 

3-1975 

4-1976 

. 5-1977 

6-1978 

7-1979 

2. ITC: with personal 

tax offset 

kd = 2ke; k'S = lee 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

3. 10-5-3 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

2,5 2.3 95 

11.0 8.9 .2 

16.0 10.9 -3.8 

16.0 9.4 -6.6 

15.7 7.7 -4.8 

15.6 6.3 -2.2 

17.7 6.3 -.5 

1.6 1.8 .8 

10.0 8.1 2.0 

15.4 11.1 -1.5 

15.6 9.8 -4.7 

14.9 7.9 -2.9 

14.5 6.2 .4 

16.5 6.4 3.4 

e9 1.4 .3 

5.1 7.8 1.2 

10.4 12.7 .1 

12.6 14.5 -2.1 

15.4 17.0 -1.4 

19.0 18.3 .8 

23.0 20.0 -8 

C-E 

Equipment 

1.0 

3.5 

5.1 

4.5 

3.9 

4.0 

4.6 

-.O 

1.9 

3.8 

3.6 

3.0 

2.9 

3.5 

.3 

1.8 

3.7 

3.7 

3.7 

4.5 

5.7 

Equations 

Structures Housing 

1.8 .6 

6.3 1.4 

8.0 -.I 

9.0 -1.1 

6 -5 .3 

5.6 2.2 

6.0 3.6 

1.3 -8 

5.2 3.2 

7.6 2.9 

9.3 2.0 

7.0 2.9 

6.2 4-8 

6.6 7.2 

1.2 .4 

6.1 1.7 

10.3 2.0 

11.4 1.6 

13.1 3.2 

14.0 6.6 

16.1 8.9 
-107-

Table 11.3 Full Model Simulations, Percent Changes from Baseline, 

(continue,!) Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

Simulations -

Year

4. Ak', = +16.264% 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 ' 

6. OTA Alternative 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

, 6-1978 

- 7-1979 

(3) (4) (5) (6) (7) (8)

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- Strucment tures Housing ment tures Housinq 

6.1 3.1 1.0 2.3 2.0 1.0 

29.4 12.2 -.4 8.7 5.7 2.4 

41.5 15.2 -10.1 11.2 5.5 -1.1 

35.5 8.6 -16.9 8.3 1.7 -3.0 

32.9 4.1 -11.5 7.0 .o .9 

32.7 2..5 -3.9 7.1 -.I 4 ..5 

37.6 3 .O -1.0 8.0 .6 5.9 

2.0 2,6 .a .7 1.6 .9 

5.7 7.8 1.6 1.8 4.2 2.5 

6.1 7.6 -1.3 1.9 3.8 1.0 

3.5 5.0 -2.2 .8 2.5 .5 

3.3 4.4 .9 .9 2.5 2.1 

3.9 4.6 2.7 1.5 2.8 3.0 

4.9 5.6 2.6 1.9 3.5 2.9 

1.3 1.3 .4 * .5 1.1 .4 

6.8 6.9 .9 2.1 5.1 1.6 

10.6 9.5 -1.4 3.4 7.3 1.1 

9.3 7.7 -4.3 2.4 6.2 -.3 

8.3 6.2 -2.6 1.6 5.6 .8 

8.4 5.4 .6 1.9 5.3 3.4 

9.6 5.6 2.3 2.7 6.2 5.0 
-108-

Table 11.4 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

Michigan 

(1) (2) (3) (4) (5) (5> (7) (8) 

Percent Changes from Baseline 

- Original Equations C-E Equations

Equip- StrucSimulations Year ment tures Housing 

1. ITC: no personal tax 

offset 

ki = 2ke; kk = ke 

1-197 3 

2-1974 

3-19 75 

4-1976 

. 5-1977 

6-1978 

7-1979 

2. ITC: with personal 

tax offset 

k; = 2k,; k; = ke 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-197 8 

7-1979 

3. 10-5-3 

1-197 3 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-197 9 

,8

1.3 

.1 

.2 -.

,a

0 

1.5 -2 -.o 

1.4 .1 -.O 

1.6 .2 -.O 

1.6 .1 -.O 

1.6 .1 .Q 

.7 -.4 -.3 

.8 -.6 -.7 

.9 -.8 -.8 

.8 -.9 -.9 

.8 -1.0 -1.0 

.8 -.9 -1.2 

.7 -.8 -1.3 

2.3 .2 .o 

3.2 

3.8 

.4 

.4 

.o

-.0 

'3.4 .4 .o 

3.2 .3 .1 

2.9 .2 .3 

2.9 $2 .a 

t 

\ 

Equip- Strucment tures Housing 

1.1 

1.5 

.1 

.2 

.o 

-.o 

1.7 .2 -.l 

1.5 .1 --1 

1.8 .1 -.O 

1.8 

1.8 

.1 

-1 

-.O 

-.0 

.9 -,4 .--.3 

1.0 -.5 -.7 

1.0 -.7 -.9 

.8 -.8 -1.0 

1.0 -.9 -1.0 

1.0 -.8 -1.2 

.9 -.7 -1.3 

2 .l .2 .o 

3.2 .4 .o 

3.8 .4 -.O 

3.2 .3 .o 

3.2 -3 .1 

3.1 .2 .3 

3.2 .2 .8 
.. 

-109-

Table 11.4 Full Model Simulations , Percent Changes 'from Baseline, 

(continued) Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

Michigan 

(1) (2) 

Simulations -

Year

4. Akk = +16.264% 

. 1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

5. Au' -9.815% 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

6. OTA Alternative 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

(3) (4) (5) (6) (7) (8)

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- Strucment tures Housing ment tures Housing 

2.3 .2 .o 2.4 .2 .o 

3.2 .4 -.O 3.4 .4 -.O 

3.6 

3.0 

.4 

.3 

-.1 

-.1 

3.7 

2.9 

.4 

.2 

-.I 

-.l 

2.8 .2 -.l 3.0 .2 -.l 

2.6 .1 -.l 2.9 .1 -.1 

2.6 .1 -.1 2.9 .1 -.l 

-1.0 -.1 -.O -1.1 -.l -.O 

-1.3 -.l .o -1.4 -.l .o 

-1.8 -.l .1 -2.0 -.l .1 

-2.2 -.l .2 -2.3 -.l .2 

-2.0 

-1.5 

-.l 

.o 

.2 

.3 

-2.1 

-1.6 

-.1 

.o _-.2 .3 

-1.3 .2 .6 -1.5 .1 .6 

.7 .1 .o .5 .o .o 

1.0 .2 .o 1.0 .1 .1 

1.2 .2 .I 1.2 .1 .1 

1.1 .1 .1 1.0 .1 .1 

1.0 .1 .1 1.1 .1 .1 

1.0 .1 .2 1.0 .1 .2 

1.0 .1 .4 1.1 .1 .4 
-110-

Table 11.5 Full Model Simulations, Percent Changes from Baseline, 

Fourth Quarters, of Each Year, Investment in Equipment, 

Structures and Housing 

MPS (with Unborrowed Reserves at Baseline Values) 

(1) 

Simulations Year 

1. ITC: no personal tax 

offset 

k& 5 2ke; k: = ke 

1-1973 

2-1974 

3-1975 

4-1976 

. 5-1977 

6-1978 

7-1979 

2. ITC: with personal 

tax offset 

k; = 2ke; ki - ke 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-197 8 

7-1979 

3. 10-5-3 

1-197 3 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

(3 1 (4) (5) (-61 (7) (8) 

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- Strucmen t tures ' Housinq ment tures Housing 

2.5 2.6 .5 .9 3.4 .5 

5.8 4.9 2.5 2.5 4.1 2.2 

13.5 8.7 1.7 6.3 7.1 2.0 

19 -4 13.0 2.4 10.0 10.2 3.5 

.19 D 7 15.0 4.2 11.8 11.3 5.6 

16.6 12.4 3.5 10.0 8.4 4.9 

11.6 9.4 1.8 5.5 5.6 3.1 

1.0 1.1 -.6 -1.1 2.0 .;.6 

3.9 1.7 -1.3 -1.3 1.8 -1.8 

9.9 4.4 -2.6 -1.0 3.9 -2.7 

16.2 7.7 -3.6 1.9 6.7 -3.4 

17.2 9.7 -1.8 4.7 8.9 -1.6 

15.6 9.4 1.3 6.1 9.3 2.2 

12.7 9.0 2.8 6.2 9.8 5.3 

.8 3.5 .2 .6 4.9 .3 

2.2 5.9 1.4 1.8 6.7 1.6 

5.8 8.7 1.6 4.9 8.7 1.9 

9.1 13.5 2.9 8.0 14.0 3.7 

10.9 16.8 5.4 10.7 17.4 6.4 

10.2 15.0 5.7 6.8 14.1 6.8 

7.8 12.7 4.9 6.0 10.7 6.0 
-111-

Table 11 5 Full Model Simulations, Percent Changes from Baseline, ' ' 

(continued) Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

MPS (with Unborrowed Reserves of Baseline Values) 

(2) 

Simulations -

Year

4. Ak; = +16.264% 

1-197 3 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

5. Au' * -9.815% 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

6. . OTA Alternative 

1-1973 

2-1974 

3-1975 

4-197 6 

5-1977 

6-1978 

7-1979 

(3) (4) (5) (6) (7) (8)

Percent Changes from Baseline 

Original Equations C-E Equations 

Structures Housing 

.3 .7 

1.6 3.5 

3.5 2.8 

5.2 4.9 

5.9 7.6 

3.. 2 6.2 

.2 3.3 

3.8 .5 

4.9 2.3 

5.7 2.1 

8.3 3.4 

8.9 

6.1 3.0 

3.3 .9 

-4 6 

3.1 .3 

3.8 1.5 

4.4 1.6 

6.8 2.7 

7.4 4.1 

4.8 3.1 

2.3 1.3 

Equip- Strucment tures Housinq 

8.9 .8 .9 

17.9 6.0 5.7 

29.2 10.4 . 3.2 

30.2 13.2 3.2 

14.7 12.3 2.4 

-18.1 4.3 -3.2 

-123.2 -12.4 -11.6 

1.2 2.8 .5 

3.0 4.8 2.3 

6.0 6.5 1.8 

7.2 8.8 2.7 

6.7 9.3 3.8 

4.9 7.0 2.5 

2.8 4.7 .9 

1.3 2.3 .2 

3.2 3.9 1.5 

6.8 5.5 1.3 

8.6 7.7 2.1 

8.3 8.4 3.4 

6.5 6.4 2.6 

4.0 4.2 1.2 

Equipment .. 

1.5 

4.9 

12.2 

17.2 

18.4 

15.1 

8.6 

.7 

2.0 

4.6 

6.1 

6.7 

5.0 

1.5 

.6 

1.7 

4.1 

5.7 

6.5 

5.1 

1.8 
-112-

Table 11.5 M-1 Full Model Shulations, Percen,t Changes from Baseline, 

Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

MPSS with Ml at Baseline Values 

(1) (2) (3) (4) (5) (6 1 (7) (8) 

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- StrucSimulations Year ment tures Housing mene tures Housing 

1. ITC: no person& tax 

offset 

kk = 2k,; k: = ke 

1-1973 2.4 2.5 -.2 .7 3.2 -,2 

2-1974 4.6 3.3 -3.1 1.4 2.9 -2.5 

3-1975 10.5 5.8 -4.0 3.3 5.0 -2.9 

4-1976 14.9 8.4 -5.3 5.2 6.8 -3,8 

5-1977 14.4 8.1 -6.6 4.8 , 5.6 -5.9 

6-1978 10.9 4.9 -11.2 1.4 1.8 -11.6 

7-1979 6.8 2.5 -13.7 -2.6 -.4 -14.8 

2. ITC: with personal 

tax offset. 

k: = 2ke; k: = ke 

1-1973 1.6 1.7 1.7 -.5 2.7 1.8 

2-1974 5 -8 4.0 4.5 .9 4.1 5.5 

3-1975 12.7 6.8 1.0 3.4 6.5 2.7 

4-1976 19.4 10.8 1.5 6.3 9.9 3.9 

5-1977 20.2 13.5 3.7 9.0 12.4 5.6 

6-197 8 17.8 12.0 6.3 7.6 9.5 4.7 

7-1979 14.1 11.4 7.5 3.3 7.3 2.6 

3. 10-5-3 

1-1973 .7 3.4 -.3 .5 4 -8 -.4 

2-1974 1.4 4.8 -2.7 .8 5 -4 -3.2 

3-1975 3.5 6.5 -2.9 1.7 6.5 -3.2 

4-1976 5.4 9.6 -3.6 2.9 10.4 -4.0 

5-1977 5.7 10.0 -5.7 3.0 11.0 -6.4 

6-1978 3.3 5.9 -12.7 .2 5.6 -10.2 

7-1979 -.8 1.8 -17.1 -4.9 1.0 -18.4 
-113-

Table 11.5 ?4-1 Full Model Simulations, Percent Changes from Baseline, 

(continued) Fourth Quarters of Each Year, Investment in Equipment, 

Structures and Housing 

MPS, with Hl at Baseline Values 

(2) 

Simulations -

Year

4. Ak; = +16.264? 

1-197 3 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

5. Au' a -9.815% 

1-1973 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

6. . OTA Alternative 

1-197 3 

2-1974 

3-1975 

4-1976 

5-1977 

6-1978 

7-1979 

ment tures ment 

8.5 .6 -.3 1.4 

15.0 2.6 -6.9 3.7 

25.4 4.6 -9.0 8.5 

30.2 6.6 -10.8 10.9 

26.0 7.3 -9.3 9.5 

17.4 6.4 -7.0 4.8 

/ 

(3) (4) (5) (6) (7) (8)

Percent Changes from Baseline 

Original Equations C-E Equations 

Equip- Struc- Equip- StrucHousing tures Housing

.2 .1 

.3 -1.8 

1.0 -3.4 

.s -6.0 

-1.4 -7.5 

-4.7 -14.3 

-6.6 5.7 -5.3 .I -6.4 -17.9 

1.1 2.7 -.l .5 3.7 -.2 

2.0 3.5 -2.6 .9 3.6 -2.8 

3.6 4.1 -3.2 1.4 i 3.6 -3.1 

3.6 5.2 -3.8 1.4 5.1 -3.8 

2.5 4.1 -4.8 .4 4.2 -5.3 

1.0 2.0 -7.3 -1.4 1.8 -8.3 

-.2 .5 -8.8 -2.7 .5 -9.8 

1.3 2.2 -.2 .5 3.0 -.3 

2.5 2.9 -2.3 .9 2.8 -2.3 

4.8 3.5 -2.7 1.7 2.9 -2.3 

5.6 4.7 -3.2 2.1 4.3 -2.8 

4.8 4.1 -3.9 1.4 3.6 -4.1 

3.1 2.1 -6.1 -.4 1.1 -7.0 

1.4 .6 -7.5 -2.3 -.4 -8.8 
-114-

Appendix D. Rates of Depreciation and Investment Credit and Tax Lives 

Depreciation rates by age of assets under existing law were 

calculated for equipment and for structures from Treasury data. The 

Office of Tax Analysis had calculated depreciation charges by age of 

asset for each of a large number of asset classes. Aggregates of 

these were furnished us for utilities, for nonutility buildings and 

for a total of the National Income Accounts category of equipment 

(including vehicles) plus utilities. (This total is, the Office of 

Tax Analysis points out, almost all in fact subject to the investment 

tax credit for equipment.) Making use of weights corresponding to 

1980 investment spending, also utilized by the Office of Tax Analysis, 

these depreciation charges by age of asset were re-allocated to form aggregates 

for equipment and for structures. The depreciation charges from equipment 

of each age were then divided by the total of depreciation charges from 

assets of all ages to secure depreciation rates by age, which hence of 

course totalled to unity. Similarly, depreciation charges from structures 

of each age were divided by the total depreciation charges of structures 

of all ages to secure depreciation rates by age for structures. 

We secured from the Treasury estimates of the aggregateof similar 

depreciation flows by age of asset for the alteinative tax reduction proposal 

which we have analyzed. These too were converted to depreciation rates for 

equipment and for structures to fit the NIA categories used in the models. 

Calculation of depreciation rates for the 10-5-3 proposal proved 

quite complicated because of the phase-in provisions. The transitional 

rates of depreciation by age of asset, along with the 

ultimate rates, to be achieved immediately for vehicles 
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

-

-115-

but only after. a five year phase-in for buildings and for equipment other 

than vehicles, are indicated below. 

Age of Asset 

(Years) 

Depreciation Rates for 10-5-3 

Ultimate Rates 

Class of Investment 

Equipment Other 

Buildings Than Vehicles Vehicles 

I 11 111 

(10 Years) (5 Years) (3 Years) 

.10 .20 .33 

.18 .32 .45 

.16 .24 .22 

.14 .16 

.12 .08 

.10 

.08 

.06 

.04 

.02 
-116-

Transitional (Phase-in) Rates for Buildings 

(Class I Investment, 

Expected Lives 20 Years or More) 

Capital Recovery 

Year 

(Age of Asset 

Plus One] 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

Year of Phase-in 

1 2 43 4 5 

(18 Years) (16 Years) (14 Years) (12 Years) (10 Years) 

.06 .06 .08 m 08 0 10 

.10 .12 .14 .15 .18 

e 10 e 11 0 12 .14 16 

.09 .10 .11 13 .14 

.09 .09 .10 .11 .12 

.08 .09 .09 .10 .10 

D 07 .08 .08 .08 0 08 

07 * 07 e 07 .07 a 06 

06 .06 86 .06 04 

.06 .OS .05 .04 .02 

.05 .05 .04 .03 

.04 .04 .03 .01 

.04 03 .02 

.03 .02 0 01 

.02 .02 

.02 .01 

.01 

.01 
Transitional (Phase-in) Rates for Equipment 

(.Class I1 Investment, 

Expected Lives 10 Years or More)* 

Capital Recovery

Year Year of Phase-in 

(Age of Asset 

Plus One) 1 2 3 4 5 

(9 Years) (8 Years) (7 Years) (6 Years) (5 Years) 

1 .11 .13 .14 .17 .20 

2 .20 .22 .25 .28 .32 

.17 .19 .21 .22 .24-

.15 .16 .16 .16 .16 

.12 .12 .12 .11 .oa 

.10 .09 .08 .06 

.07 .06 .04 

.05 .03 

.03 

*For equipment with expected lives less than 10 years, the transitional 

rates are based successively on capital cost recovery periods which 

equal the Asset Depreciation Range lower limit (-ADRLL), ADRLL - 1, 

ADRLL - 2 and ADRLL - 3, but in no case less than 5 years. 
-118-

The Office of Tax &lysis has calculated estimates of depreciation 

charges for separate categories of equipment including utility structures, 

which are in the five year category, utilities by themselves, and nonutility structures. These are based upon estimates of investment expenditures of $28.3 billion for vehicles, $163.3 billion for other NIA equipment, 

$60.7 billion for utility structures, and $48.4 billion for non-utility 

buildings, along with forecast value of investment expenditures for each 

of the years 1981 through 1989. The Treasury estimates were calculated on 

the basis of projections of the dollar amounts of additions in each of 

the 10-5-3 categories over the years 1980 through 1989. 

It was necessary for us to calculate depreciation rates by age of 

asset and year of phase-in which could be applied to equipment and structures 

Categories by vintage as they appear in the models on the National Income 

Accounts. To do so, we took the depreciation rates specified in the 

Conable-Jones bill and the phase-in rates set by the Office of Tax Analysis 

in conformity with the provisions of the bill and scaled them in a 

recursive process, year by year, so that when applied to the forecast 

expenditures for equipment and for structures they would generate the 

depreciation flows calculated by the Office of Tax Analysis. We may write 

this explicitly for equipment as follows: 

Solve for mtIIA and djtU t=1,...,10 

j=19e.. ,t 

note dV = .33, .45, .22 j = 1,2,3

jA 

dV = 0 j>3 j-4 for all t , 
-119-

where 

A is a subscript denoting 10-5-3 

Dm= depreciation charges for equipment in the year t 

m = the scaling factor for class I1 investment (the 5-year category tlLA for equipment other than vehicles), necessary because for some 

class I1 investment ADRLL c 10 

r is the proportion of NU equipment expenditures assumed in 

class I1 investment (equals 163.3/191.6 = .8523) 

dl' = the depreciation rate in the year t for category I1 assets in their 

jtA j-th year with original tax lives of 10 years or more 

= equipment of age j-1 in the year t, hence the equipment 

expenditures made j-1 years before the year t 

dV = the depreciation rate for vehicles in their j-th year 

jA or j+l years old 

djtEA = the depreciation rate in the year t applicable to the 

aggregate of NU equipment in their j-th year or 

j+l years old 

The depreciation rates for structures under 10-5-3 were calculated as 

weighted averages of the class I and class I1 rates in the tahles above, 

where the weights were 48.4 for the class I rates and 60,7 for the 

class I1 rates. These weights corresponded to the amounts of NIA 

structures investment estimated by the Office of Tax Analysis to he 

non-utility buildings, falling into class I, and the amounts of NIA 

structures investment estimated to be utilities, falling into class 11, 

J The depreciation rates by year of life of assets, all reflecting the 

half-year convention for the first year, for equipment and for structures, 

are listed below for, respectively, existing law, a possible Treasury 

alternative, and 10-5-3. 
-- 

-120-

Depreciation Rates 

Year of 

Asset (Age 

Plus Existing Law Possible Treasury Alternative 

One) Equipment Structures Equipment Structures 

1 
iDa 

03W omiDooooooo 

0 

N 

W 

4 

iD 

0) 

03\00000000 

rg 

w 

m 

9 

C 

P. 

'd

3 

R 

.* 

00 

NW 

WiD 

40 

iDa 

03W omiDooooooo 

1 

0 

N 

W rg 

4 

iD 

0)

03\00000000 

I 
4 4 4 4 4 M I- yr co co Q) co 08 w R)

\o \o \o \D \o h, 

0 I- I- I- F c, as 0 

co co co Q3 0) F 4 

* . . e 6 e 

N N N tu I- w I- 0 0 0 0 a3 4 vs 

4 4 a 4 ba 0 4 

Ln yr VI VI wi 0 v1 

0 0 0 0 0 4 0 

u7 \o Q u7 u7 w \Q

JI cr, m m a w a 0 

. . 0 0 Q 8 

P I- I- I- w ++ yr VI VI &b w W M c-’ I- I- m 4 u w I- P I- m 00 W W 

N N N u7 I- co co 

4 4 4 I- co N M 

sa A 4 + VI M M 8 8 0 

D . I e * 

0 0 w P w w u7 u7 P I- 0 0 4 4 0 c.r m m M 

4 4 0 F a aa 

LA 4 Q M a \Q 

VI VI 0 4 i-J 

h) h) 0 i=d w a 69 a 

0 e e e 0 

8 8 0 Q 8 

ba 4 co \B 

4 4 4 0 F m 

W 4 ba 0 P 

m ba W 0 N 

w VI JI 3 4 

0 N W 0 4 0 0 8 c) 0 

. e . 0 0 0 0 

w ul m 4 -4 VI 4 co 0 

sa 4 0) 0 

u7 4 4 0 

8 yr h) 0 

ba N m 0 0 8 0 a 0-

Q l 

. . 0 0 0 

W sa yr 103 P 4 Q) 

0 4 co 

VI ba 4 

4 VI N id N m 0 0 0 0 0 0 0 

. 

0 0 

h) 4 

cn W 

a w I- 0 

4 W 

co \D 0 0 0 8 a 8 �3 

0 

N 

cn id 

n 0 

P 

4 0 0 0 0 0 0 0 0 

co 
IO IO IO IO IO \o IO (9 \o 

P F F I- *I- *I- *F *I- F 

CO 

. CD CD CD OCD OCD 00) oco CD 

0 w F F 

4. W. 4. 4* . N N N N 4N WN 4N 4N N 

0 0 0 0 wo 00 40 40 0 

4 4 4 4 QI4 a4 VIA 04 4 

OVI OW OM 00 WVI IOVI NU NVI OVI 

0 0 0 0 0 0 0 0 0 

IO IO IO IO *IO ‘a ‘(9 a a 

3 m in cn Om om OQI a m 

0 F F . . . coo w. 4. . F I- I- F CDP WP 4I- F IVI VI VI VI 4VI OVI &VI VI VI F F I- F NI- CDI- MI-’ F IOW OF OI- OF QIF IOF NI- OF OF 

N N N N N N N N N 

4 4 4 ‘4 *4 *4 4 4 4 

4 4 4 04 04 04 4 4 4 

0 0 F . . . 9. CD* W* b . 0 0 0 40 CDO wo 0 0 0 

a a a WIO 4a Oa a IO IO 

4 4 4 QI4 N4 a4 4 4 4 0 0 

04 04 04 w4 in4 IO4 a4 04 04 

M I 

4 4 4 4 4 4 A 4 4 

VI VI VI *VI *VI VI VI VI VI 

N N N ON ON N N N h) 

0 0 . . . 0)‘ 05. . . 0 

0 0 0 COO COO 0 0 0 0 

9 4 4 44 44 4 4 4 

4 4 rp N4 N4 4 4 4 4 

ow ow ow QIW QIW ow ow 3W 3w R 

QI QI QI QI a\ m m a cn 

5 W W *W *w W W w W W ID 0 0 00 00 0 0 0 0 0 v1

0 0 * 4. CD* . . . n 

0 0 40 CDO 0 0 0 0 0 a 

PI W W ww 4W W W W W W 00 VI VI QIvr NVI VI VI VI VI VI ID

04 04 W4 a9 04 04 04 09 O* 

a a a IO IO IO (9 IO IO N 

0 0 

0 0 0 0 0 0 0 0 W 

9 4 01p 4 4 4 4 4 4 0 . . 4. . . . . . 0 0 40 0 0 0 0 0 0 

N N WN N N N h) N W 

QI QI QIQI QI s, QI cn QI IOQI OJ\ WSI OQI 00 OQI om On 03 

F F F I- F F P I- VI 

4 

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co 00) CD 0) co CD Q, 03 F 

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91 I . * . . 0 40 0 3 0 0 0 0 0 c-l WF F F F F P N N 

4 a4 4 4 4 4 4 QI QI

04 W4 04 04 04 04 04 Ob\ OQI 

4 4 4 4 4 4 4 F F 

VI VI VI VI VI VI VI 4 4 

N N N N N N N CD cx) 

. . . . . . . . 0 0 0 0 0 0 0 0 0 

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CD CD co a3 co CD 4 N N 

OCO OCO 00) OCD om OCO 04 OF OW 

4 4 4 4 4 4 9 a, CD 

N N N N N N VI I- F 

in in j\ QI Q\ cn hJ VI vr . . . . 0 0 0 0 I- P N IN 

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a0 VI c I--

0 0 0 0 0 IO N VI VI 
- -_ 

-124-

Estimates of depreciation tax lives under existing law, 10-5-3 and 

the OTA alternative were also obtained from Larry Dildine. These 

were made available for the National Income Account categories of 

equipment and structures and for utilities and for buildings other than 

utilities separately. The NIA structures category was constructed 

as an average of utilities and buildings ,other than utilities with 

weights of .6 and .4 respectively. 

Multipliers for tax lives and the investment credit by Wharton 

sector, for equipment and structures combined, were also obtained from 

OTA calculations. These entailed, for tax lives, calculating weighted 

averages for equipment and for structures where the weights were the 

present values of equipment and building spending in each sector. 

Transitional year multipliers for utilities and communications were 

calculated on the assumption that after the initial drop lives decline 

by one year in each year of the transition. For the other sectors, 

transition year murtipliers were calculated on the basis of the ultimate 

estimated multiplier for each sector, the total relative reductions in 

lives for each year of transition for all equipment and all buildings, 

and the proportions of Pquipment and huildings in each sector. 
-125-

OTA Estimates of Depreciation Tax Lives 

and Rates of Investment Credit 

Tax Lives 

Investment Credit Buildings

Equipment Structures Other than Equipment Structures 

(NU Categories) Utility Utility (NIA Categories)

Regime Years Percent 

Existing Law 7.3 22.8 32.6 18.5 8.8 4.8 

10-5-3 Year 1 6.9 12 .o 17.1 8.6 9.6 5.0 

Year 2 6.275 10.6 15.1 . 7.6 9.6 5.0 

Year 3 5.65 9.2 13.1 6.6 9.6 5.0 

Year 4 5.025 7.8 11.1 5.6 9.6 5 .O 

Year 5 4.4 6.4 9.1 4.6 9.6 5 .O 

OTA Alternative 5.9 15.9 10.0 5.4 
-12 6-

Multipliers for Tax Lives and Investment Credit, by Wharton Sector, 

Equipment and Structures Combined, from OTA Calculations 

Sector 

Agriculture 

Mining 

Mfg .,Durables 

Mfg .,Nondur. 

Transport at ion 

Utilities 

Communications 

Commercial 

10-5-3 OTA Afternative 

Invest- Depreciation Tax Life ment Depreciation Investment 

Transition Year Credit Tax Life Credit 

1 2 3 4 5 

.871 .784 ,697 .610 .523 1.048 .808 1.141 

,927 .81? .708 .598 .488 1.021 ,766 1.036 

.906 ,797 .688 .580 .4?1 1.142 .796 1.192 

,902 .789 .675 .562 .448 1.050 .754 1a 089 

,920 .804 .689 .573 .458 1.137 .799 1.180 

,429 .380 .332 .284 .236 1.005 ,713 1.014 

.5?8 0 513 0 448 .383 ,318 10 002 a 701 10 005 

,882 .?77 671 -566 -461 1.208 854 1e 363 
-127-

Appendix E Present Value Equivalent Calculations 

1. Set present value of tax reductions from investment tax credit increase 

equal to present value of tax reductions from acceleration of depreciation. 

. L* 

Where (D'-D>t+j = m=O 'dJm - jm) It+j -m 

u = rate of business income taxation 

D = old tax depreciation charges; D' = new tax depreciatian charges. 

k = old investment tax credit; k' = new investment tax credit. 

I = eligible investment, current dollars. 

d = old rate of depreciation on assets m quarters old in quarter t+j. jm 

d !

Jm = new rate of depreciation on assets m quarters old in quarter t+j. 

L* = maximum of L and L', old and new tax lives, respectively. 

i = rate of interest to be used in discounting tax reduction 

j j quarters in the future. 
-128-

2. Set present value of tax reductions from reductions in corporate tax 

rates equal to present value of tax reductions from acceleration of 

depreciation. 

where 

u and u' = old and new (reduced) marginal corporate income tax 

rates, respectively 

R = corporate profits before taxes (without adjustments) 

and other symbols are as defined in 1. 
-129-

3. Present values of tax reductions of 10-5-3 (A) and of the 

possible Treasury alternative (B) 

where (Di-D)j = the difference in tax depreciation in the jath quarter 

= the difference in the effective rate of investment credit AkEX for equipment 

= the difference in the effective rate of investment credit Aksx for structures 

E

j = Equipment investment in the j-th quarter 

S

j = Structures investment in the j-th quarter 

x = A for 10-5-3 

x = B for Treasury alternative 
-130-

Appendix F. Simulation Input by Model 

Specific inputs to each model for each, simulation are described 

in this appendix in a general notation which is referenced in the 

glossary. 

At the end of the section for each model a concordance relates the 

general notation and model-specific variable labels. 

A set of parentheses following a variable, as XYZ ( )', indicates 

that the varible is determined by a stochastic equation. Variables 

without parentheses are exogenous. 

1. k: = 2 * ke 

k' = ke

S 

2. k' = 2 * ke 

e 

PTR' = PTR( ) + ke * .0737379 * (E$ + S$) 

3. k: = k + .008 

e 

ki = ,002 

LA = 10.397, 9.456, 8.514, 7.572, 6.630, 6.630, 6.630 (annual values, 

1973-197 9) 

LH = 12.00, 10.600, 9.200, 7.800, 6.400, 6.400, 6.400 (annual values, 

1973-197 9) 

CCCA' * -CCCA + s * (DA - D) I/ -

PCCA'= PCCA + (1-S) * (DA - D) i/ - - 4. k: = ke + .16264 

5. U' u - $09815 

#These series are the same for all models and are listed in Appendix B. 
-131-

6. k; = ke + .012 

k3 = ,006 

Ld = 8.890 

L; - 15.900 

-

CCCA' =sCCA + s * (DB - D) # 

-PCCA' 0 ECCA + (1-S) * (DB - D) # 

ke = CREDIT1/100 

kS = CREDIT2/100 

E$ = IBFNRES 

S$ = IBFNRS$ 

PTR = TCF 

Le = LIFE1 

Ls = LIFE2 

CCCA = DECAJ (this variable was altered by changing DECIRS) 

-

PCCA = CCANF 

u = RTCF~IOO 
-132-

-

CHASE

1. k: = 2 * ke 

kJ = ke 

2. kh = 2 * ke 

PTR' - PTR( ) + ke * (E$ + S$) 

3. kh = ke + .008 

k; = .002 

L; = 9.925, 9.026, 8.127, 7.228, 6.329, 6.329, 6.329 (annual values,1973-1979) 

LJ = 12.105, 10.693, 9.281, 7.868, 6.456, 6.456, 6.456 (annual vafue@973-f979) 

CTR' CTR( ) - u * s * (DA - D) 

PTR' - PTR( ) - u * (1-S) * (DA D) 

4. k; - ke 9 .I6264 

5. U' p u - ,09815 

6. kh = ke + .012 

ki = .006 

Lk = 8.486 

. L; = 16.039 

CTR' = CTR( ) - u * s * (BB - D) 

PTR' PTR( ) . u * (1 - S) * (DB - D) 
-133-

ke = DITC 

ks = DITCS 

E$ = IPEZ 

ss = IPSZ 

PTR = TPF 

Le = TE 

Ls = TS 

CTR = TCF 

u = TXRCF 
-134-

-

DRI

1. kl = 2 * k, 

2. kH = 2* k, 

k: = k, 

PTR' = PTR( ) + k, * (E$ 9 S$) 

3. kl = k 9 .008 

e 

kE, = .002 

LA = 10.492, 9.541, 8.591, 7.641, 6.690, 6.690, 6.690 (annual values, 

1973-1979) 

Li = 12.000, 10.600, 9.200, 7.800, 6.400, 6.400, 6.400 (annual values, 

1973-1979) 

-CCCA a CCCA( ) + 

PTR' = PTR( ) - u 

4. ki = k, + .l6264 

5. U' = u - .09815 

6. ki = k, $. .012 

ki = ,006 

LA = 8.971 

Li = 15.900 

s * (Da - D) 

* (1 - S> * (B* - D) 

-CCCA' CCCA( + s * (DB - D) 

PTR' = PTR( ) - u * (1-S) * (DB - D) # 

.. 

c 
-135-

-

DRI

ke = RITCBASE 

RITCCNR 

IPDENR 

ICNR 

PTR = TP 

Le = IPDENRLIFETIME 

Ls = ICNRLIFETIME 

CCCA = CCACORPBOOK 

u = RTCGFS 
-136-

MICHIGAN 

1. k: = 2 * ke 

2. k: * 2 * ke 

PTR' = PTR( + ke* E$ 

3. k: = ke + .008 

TD:x = .280729 

* .484908 

= .280729 

TDIO 

-CCCA' GCCA + s * (DA- B) 

PTR' = PTR( ) - u * (1-S)* (DA - D) 

4. k; = ke + .16264 

5. U' = u - .09815 

6. k: = ke + .012 

TDL = .229314 

TDia = .39609? 

TDIo = ,229314 

-CCCA' 3 CCCA + s * (DB - D) 

PTR' 31 PTR( ) - u * (1-S) * (DB - D) 

ke = TITCR 

PTR = TP 

E$ = IBFPD 

TDex = TDEPRQO 

TDea = TDEPRAG 

TDeo = TDEPRQO 

-CCCA = KCCA 

u = TCFR 
-137-

-

MPS

1. kL=2*k 

e 

k: = ke 

* 

2. kL = 2 * ke 

k; = k 

e 

PTX' = PTR ( ) + ke * (E$ + S$) 

3. ki = ke + ,008 

k' = .002

S 

LL = 9.925, 9.026, 8.127, 7.228, 6.329, 6.329, 6.329 (annual values, 

(1973-1979) 

LA 12.000, 10.600, 9.200, 7.800, 6.400, 6.400, 6.400 (annual values, 

1973-1979) 

-

CCCA' CCCA + s * (DA - D) 

PTR' 0 PTR( ) - u * (1-S) * (DA - D) 

4. kH = ke + .16264 

5. U' u - ,09815 

6. k' = k + .012 

e e 

k' = ,006

S 

LL = 8.486 

L: = 15.900 

-CCCA' = CCCA + s * (DB - D) 

PTR' PTR( ) - u * (1-S) * (DB - D) 
-138-

k 

e 

ks 

E$ 

S$ 

PTR 

Le 

Ls -CCCA 

= TCPD 

= TCPS 

= EPD$ 

= EPS$ 

= TPF$ 

= SLPD 

= SLPD 

= WADYC 
-139-

WHARTON 

1. k:=2*k 

e 

k: = k 

e 

j = AG, MG, MFD, MFN, RGT, RGC48, RGU49, CM, BA 

2. k'=Z*k 

e e 

k' = ke 

s 

A h 

kI=2*k 

J j 

PTR' = PTR( ) + C $! * I.$ J J j 

3. k; = ke + .008 

k; = .002 

"' = + .006

'j j 

L;" Lj' * Yj' ¶t 

L j' = AG, MG, MFD, MFN, RGT, RGC48, RGU49, CM 

f 

The yj,,t 's are displayed in the last table in Appendix A. 

Note y

j',5 = 'j',6 = yj',7' 

-CCCA' = CCCA + s * (DA'- D) 

PTR' = PTR( ) - u * (l-S) * (DA - D) 
-140-

WHARTON 

4, k' = ke + ,16264 e 

c! = k" + .16264

J j 

CTR' = CTR( ) + .057 * I$ 

6. k: = ke + .012 

k: = .006 

A h

k' = k + .006

j j 

L'j' = L

3' * Yj' 

The yjI's are displayed in the last table in Appendix A. 

-CCCA' CCCA + s * (DB - D) 

PTR' = PTR( ) - u * (1-S) *(DB.- B) 

CTR' = CTR( ) - ,004 * I$ 

k: = ITRN/100 

k: = ITRS/100 

$ = ITRA./100 j J 

E =IBFNE 

S = IBFNS * 

h

PTR = TXCPFS 

I.$= LAj$ J 

L =LNT 

j' j' 

-CCCA = CCAACP$ 

CTR = TXCCFS 

u = TXRITEF.Jl00 

j J