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The Effects of Changes in the Tax Structure on Agricultural Asset Replacement

Published online by Cambridge University Press:  09 September 2016

Vincent H. Smith
Vincent H. Smith*
Affiliation:
Montana State University
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Abstract

This paper uses a deterministic asset replacement model to examine the implications of the 1986 Tax Reform Act (TRA) for replacement investment in U.S. agriculture. The optimal replacement age for an asset is shown to be inversely related to the size of investment tax credits and the present value of depreciation allowances but generally directly related to marginal tax rate. Simulation results indicate that the net effects of the TRA vary across assets. Replacement ages for assets with relatively long depreciation lives (e.g., farm structures) tend to fall. Those for assets with relatively short depreciation lives rise (e.g., tractors).

Keywords

agricultureinvestmentreplacementtaxes
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 22 , Issue 1 , July 1990 , pp. 113 - 122
Copyright
Copyright © Southern Agricultural Economics Association 1990

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