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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
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/4374448
Page Count: 10
You can always find the topics here!Topics: Taxes, Financial investments, Economic inflation, Capital costs, Accumulated depreciation, Effective tax rate, Depreciation rates, Capital investments, Investment tax credits, Depreciation
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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.
Economic and Political Weekly © 1985 Economic and Political Weekly