A retrospective evaluation of the effects of temporary partial expensing
By: Darrel Cohen and Jason Cummins
Contributors: Cummins, Jason
Series: Finance and economics discussion series -- 2006-19; Finance and economics discussion series (Online) -- 2006-19.
Publisher: Federal Reserve Board
Published: 2006
Place of publication: Washington, D.C
Language: eng
Format: [electronic resource] /
Description: "This paper examines how business investment responded to temporary partial expensing, first enacted in 2002 and expanded in 2003.  In principle, partial expensing boosted the incentive to invest which should have had a discernable impact on spending.  However, the tax changes did not occur in a vacuum, so it is challenging to isolate their impact.  Our empirical approach exploits a feature of the tax change which, under certain assumptions, allows us to cleanly estimate its impact.  Specifically, partial expensing provided relatively generous tax treatment for long-lived assets.  We use this insight in order to construct a difference-in-difference estimator of the tax effects.  In addition, the standard model of investment with capital adjustment costs predicts a run up in investment spending prior to expiration and a pothole just after.  Our examination of the details of expenditure patterns before, during, and after partial expensing using both monthly and quarterly data suggests considerable ambiguity as to whether the model's predictions were borne out.  In addition, anecdotal evidence provides only limited support for the effectiveness of temporary partial expensing"--Federal Reserve Board web site.
Notes: Title from PDF file as viewed on 12/7/2006.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.