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Journal Article

Inflation and Incentive to Invest in Capital Assets

Poonam Gupta and Sanjeev Gupta
Economic and Political Weekly
Vol. 20, No. 21 (May 25, 1985), pp. 927-936
Stable URL: http://www.jstor.org/stable/4374448
Page Count: 10
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Inflation and Incentive to Invest in Capital Assets
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Abstract

The purpose of this study is to estimate the marginal effective tax rates for different asset classes and change in user cost with inflation. Such calculations enable a study of the effect of inflation and other allowances like depreciation, investment allowance, etc, on incentive to invest. The results show that the effective tax rates increase with inflation but at a decreasing rate. Secondly, inflation increases the dispersion in the effective tax rates causing the tax system to become more non-neutral. A tax system is then suggested which is neutral and compensates for the price increases.

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