A Further Look at the Effect of Federal Tax Laws on Optimal Machinery Replacement

Bates et al. extended the "tax-adjusted reSelf-employment taxes, "effective" marginal placement model" by incorporating the interactax rates, and discounting schemes which allow ton between taxes and inflation in their study. for alternative purchase and disposal dates of They found that inflation increased the magnimachinery are incorporated into the traditional tude of costs and generally extended the optioptimal replacement interval model. Empirical mal replacement age. results indicate that these alterations decrease More recently Reid and Bradford introduced the optimal replacementintervals byup to three an innovative replacement value forecast and years from those obtained with traditional modexamined the effect of the Economic Recovery elingassumptions. Inclusion ofself-employment Tax Act of 1981 (ERTA-81) on optimal succestaxes decreases both the penalty attached to between the old defender tractor and early replacement and the net present value new or "challenger" tractor. As with Kay and (cost) of tractor ownership. Rister, they found investment tax credit to be the most important tax incentive to early ma