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Impact of Bonus Depreciation on Capital Expenditures

Advances in Taxation, 2017, Vol.24, p.125-161

Copyright © 2017 Emerald Publishing Limited ;ISSN: 1058-7497 ;ISBN: 9781787145245 ;ISBN: 1787145247 ;EISBN: 9781787145238 ;EISBN: 1787145239 ;DOI: 10.1108/S1058-749720170000024003 ;OCLC: 1004423947 ;LCCallNum: HJ9-9940

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  • Title:
    Impact of Bonus Depreciation on Capital Expenditures
  • Author: MacPhail, Carol ; Emekter, Riza ; Jirasakuldech, Benjamas
  • Subjects: Accounting ; Accounting & Finance ; Corporate taxation ; Economics ; Finance ; Financial reporting, financial statements ; Management accounting/corporate finance ; Public finance/economics ; taxation/public revenue
  • Is Part Of: Advances in Taxation, 2017, Vol.24, p.125-161
  • Description: Abstract Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after the September 11, 2001 terrorist attacks. We investigate whether bonus depreciation, a capital asset expensing allowance under the U.S. federal income tax code, impacts the level of business investment in property, plant, and equipment in the time periods that followed 9-11 in comparison to other earlier time periods. Based on the empirical evidence, the bonus depreciation policy has a positive effect on capital expenditures only in the period in which this policy was legislatively anticipated, specifically the period spanning the last quarter of 2001 and the first quarter of 2002. Otherwise, we find no significant increase in capital expenditures during the period that this special depreciation provision policy is initially in place from 2002 to 2005. Although bonus depreciation is re-enacted in response to the fiscal distress and recession that began in 2007, capital expenditures actually decline during the recovery era, a period following the post-2008 subprime mortgage crisis. Though Congress continues to temporarily re-enact bonus depreciation on an annual basis through December 31, 2014, there is no strong evidence that capital investment is positively impacted. Instead, the empirical results show that factors that positively affect the level of companies’ capital expenditures include capital intensity, cost of capital, amount of cash holdings, changes in sales and loans. Our empirical results invite the question of Congress’ intended goal in re-instating bonus depreciation for 2015 through 2019.
  • Publisher: United Kingdom: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 1058-7497
    ISBN: 9781787145245
    ISBN: 1787145247
    EISBN: 9781787145238
    EISBN: 1787145239
    DOI: 10.1108/S1058-749720170000024003
    OCLC: 1004423947
    LCCallNum: HJ9-9940
  • Source: Ebook Central Academic Complete
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