This paper considers the choice of capital durability by competitive firms subject to a corporate income tax. We find that, with a positive rate of inflation, a historic cost depreciation rule biases the choice of asset life toward greater durability and lowers the market valuation of a firm's capital assets. Extending the familiar one-sector monetary growth model to incorporate this behavior, we explore the general equilibrium effects that the failure to index depreciation allowances for inflation may have on the long-run characteristics of the economy, including the capital-labor ratio and the rate of return received by investors.

This paper considers the choice of capital durability by competitive firms subject to a corporate income tax. We find that, with a positive rate of inflation, a historic cost depreciation rule biases the choice of asset life toward greater durability and lowers the market valuation of a firm's capital assets. Extending the familiar one-sector monetary growth model to incorporate this behavior, we explore the general equilibrium effects that the failure to index depreciation allowances for inflation may have on the long-run characteristics of the economy, including the capital-labor ratio and the rate of return received by investors.

This study measures spending power inequality within age cohorts and estimates fiscal progressivity via lifetime net tax rates. We find, first, that inequality in income and especially wealth dramatically overstates inequality in spending power. Second, inequality in current spending power differs from that in lifetime spending power because of credit constraints, in-kind government benefits, and other factors. Third, the US fiscal system is highly progressive once cohorts are old enough to have highly dispersed human wealth. Fourth, households’ rankings based on current income can differ substantially from their rankings based on lifetime resources. Fifth, current-year net tax rates substantially understate fiscal progressivity.