MACHINERY REPLACEMENT, MULTIPLE OPTIMA, AND THE 1986 TAX REFORM ACT

Gary D. Lynne

Southern Journal of Agricultural Economics, 1988, vol. 20, issue 01, 9

Abstract: The 1986 Tax Reform Act established a first year $10,000 expensing option and, for most farm equipment, a 7-year depreciation schedule. Under a profit maximization criterion, these tax law features can lead to multiple optima dependent upon discount and marginal tax rates. For example, the economically efficient time to reinvest under a 2 percent after tax discount rate is at 4, 8, and 30 years for the grower in a 33 percent tax bracket. Thus, the profit maximization behavioral rule needs to be supplemented with knowledge about a farmer's objectives in order to select the "correct" optimal reinvestment interval.

Keywords: Political; Economy (search for similar items in EconPapers)
Date: 1988
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:sojoae:29706

DOI: 10.22004/ag.econ.29706

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