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Short-Term Incentive Effects Of Temporary Full Capital Asset Expensing, John David Patrick Witesman

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The Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) temporarily modified capital asset expensing provisions, increasing the allowed bonus depreciation percentage from 50% to 100%. The legislative intent of the provision was to encourage capital investment by firms, although prior research suggests that capital expenditures did not increase during the availability of 30% or 50% bonus depreciation. I find that the availability of 100% bonus depreciation significantly increases the likelihood that firms increase capital expenditures, as well as increases the magnitude of capital expenditures. Overall, my evidence highlights how temporary changes in capital …