Taxation, Technology, and the User Cost of Capital (eBook)

Front Cover 1
Taxation, Technology and the User Cost of Capital 4
Copyright Page 5
Preface 8
Table of Contents 10
Chapter 1. Introduction 14
1.1 General background 14
1.2 Outline of the monograph 18
Chapter 2. Basic investment criteria and the cost of capital 20
2.1 Introduction 20
2.2 The value and the rate of return of an investment project 21
2.3 Three equivalent investment criteria 23
2.4 The cost of capital interpreted as the yield from a marginal project 24
2.5 Examples 26
2.6 The rate of return and the cost of capital in the presence of an income tax 29
2.7 Concluding remarks 39
Chapter 3. Basic capital concepts: gross and net capital 40
3.1 Introduction 40
3.2 Capital as a capacity concept 41
3.3 Two auxiliary functions 44
3.4 A probabilistic interpretation 46
3.5 Capital as a wealth concept 49
3.6 Two examples 59
Chapter 4. The user cost of capital under neo-classical technology. Part 1. No taxes 64
4.1 Introduction 64
4.2 A service price interpretation 65
4.3 A shadow price interpretation based on optimizing conditions 69
4.4 Two examples 73
4.5 A decomposition of the user value of capital services 76
Chapter 5. The corporate tax system 80
5.1 Introduction 80
5.2 Accounting capital and depreciation allowances 81
5.3 The tax function 85
5.4 Specific tax systems 96
5.5 A compact description. The present value of income deduction per unit of investment cost 99
Chapter 6. The user cost of capital under neo-classical technology. Part 2. Taxes included 108
6.1 Introduction 108
6.2 The tax corrected cash-flow and investment price 109
6.3 The tax corrected user cost of capital. General expression 112
6.4 A remark on the discounting rate. Financial constraints 114
6.5 Examples and numerical illustrations 118
Chapter 7. The user cost of capital under a putty-clay technology. Part 1: No taxes 134
7.1 Introduction 134
7.2 Production technology 136
7.3 The vintage specific quasi rent, profit and service life functions 141
7.4 Service price interpretations of the user cost 143
7.5 Shadow value interpretations based on optimizing conditions 148
7.6 Examples. Numerical illustrations 154
Chapter 8. The user cost of capital under a putty-clay technology. Part 2: Taxes included 162
8.1 Introduction 162
8.2 The vintage specific tax function, quasi rent function, and profit function 163
8.3 The tax corrected service price. The shadow value interpretation 168
8.4 The effect of the tax system on the scrapping plans and on the user cost of capital 172
Chapter 9. Neutrality and departure from neutrality in corporate taxation 174
9.1 Introduction. The concept of neutrality 174
9.2 General conditions for neutrality 175
9.3 The neutrality locus 181
9.4 Measures of the departure from neutrality 187
Chapter 10. User costs and neutrality indicators for Norwegian manufacturing 214
10.1 Introduction 214
10.2 Data and assumptions 215
10.3 Results for the existing nominal system 229
10.4 Results for systems with indexation of the income tax base 244
Chapter 11. Price — quantity relations: empirical illustrations for machinery in Norwegian manufacturing 252
11.1 Introduction 252
11.2 The two-parametric survival functions and their properties 253
11.3 Investment data and derived gross and net capital stocks 256
11.4 Numerical computation of the discounted per unit service function 266
11.5 Relations between the capital stock and its user cost. Decomposition of the service value 270
11.6 Additive decomposition of the user cost 276
11.7 The retirement rate. Interpretations based on prices and on quantities 278
11.8 The survival function and the degree of substitution between capital and labour 285
Chapter 12. Concluding remarks 294
Appendix A. A note on the myopic capital service price in the neo-classical model 298
Appendix B. A generalization: Time varying interest and inflation rates 304
Appendix C. A generalization: Recursion formulae for the weighting functions with non-zero discounting rates 308
List of symbols and notational conventions 312
References 320
Author Index 328
Subject Index 330