The Tax-adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives

Author/Editor: Sophia Chen ; Estelle Dauchy
Publication Date: June 12, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: We propose a tax-adjusted q model with physical and intangible assets and estimate it with a self-collected comprehensive database of intangible assets. The presence of intangibles changes the accounting and economic measures of q. We show that when tax changes are temporary, the q model can be estimated by adjusting for the firm’s intangible stock and intangible intensity. We estimate our model using temporary investment tax incentive policies in the United States in the early 2000s. When the q-model accounts for intangible assets, the estimated investment elasticity to tax incentives is generally larger than otherwise. It is also larger for intangible-intensive firms, and increases with firm size.
Series: Working Paper No. 14/104
Subject(s): Intangible capital | Investment | Tax incentives | Tax changes | Econometric models

Publication Date: June 12, 2014
ISBN/ISSN: 9781498335478/1018-5941 Format: Paper
Stock No: WPIEA2014104 Pages: 53
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