In the past decade, economists have be-gun to realize that inflation, even when fully anticipated, constitutes a great deal more than a tax on money balances. The primary reason for inflation's wider impact is the existence of a tax system designed with stable prices in mind. This paper offers a brief summary of the effects of inflation on the tax treatment of the firm, focusing on four important decisions the firm makes: the scale of investment; the method of finance; the durability of assets used in production; and the holding period of these assets. There are a number of interesting and related issues which cannot be covered in a paper of this length. As I will be considering inflation that is both uniform and fully anticipated, questions concerning the behavior of the firm in response to uncertainty about inflation, or to a concommitant change in relative prices, will not arise.

Alan J. Auerbach, The Interaction of Financial and Investment Decisions When the Firm has Unused Tax Credits: Discussion, The Journal of Finance, Vol. 38, No. 2, Papers and Proceedings Forty-First Annual Meeting American Finance Association New York, N.Y. December 28-30, 1982 (May, 1983), pp. 606-608

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 paper examines whether middle age American households purchase adequate amounts of life insurance. The analysis is based on SRI International's 1980, 1982, and 1984 surveys of the financial positions of American households. Our findings indicate that a significant minority of American wives are highly underinsured with respect to the possible deaths of their husbands. We find that 25 to 30% of wives are inadequately insured, by which we mean that they would suffer a loss in their rate of sustainable consumption of at least 30% in the event of being widowed. These findings on inadequate life insurance are even more striking if one focuses on those households in which over half of the couple's present expected value of resources is dependent on the husband's survival. The results of this paper together with those of the related literature strongly suggest that raising the share of social security benefits that are paid to surviving spouses as well as increasing employer-provided group life insurance could have a very considerable impact on the alleviation of poverty among widows, especially elderly widows.

The Tax Reform Act of 1986 constituted the most sweeping postwar change in the U.S. federal income tax. This paper considers what the Act accomplished and its implications for future tax policy. After a review of the Act itself, and why it happened, we consider the evidence of the Act's impact on economic activity and how this evidence squares with initial predictions. Where appropriate, we draw out how consideration of the impact of TRA86 has contributed to the development of the methodology of economic analysis. We conclude with an overall evaluation of the Act.