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

IMF Working Papers, June 12, 2014

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

Authors: Sophia Chen, Estelle Dauchy
Date: June 12, 2014
Core proposition: A tax-adjusted q model that incorporates both physical and intangible assets, estimated using a self-collected comprehensive database of intangible assets.
Central insight: The presence of intangibles alters accounting and economic measures of q; with temporary tax changes the q model can be consistently estimated by adjusting for a firm’s intangible stock and intangible intensity.
Empirical setting: 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.
The investment elasticity to tax incentives is:
- larger for intangible-intensive firms,
- increasing with firm size.
Subject areas covered include: Asset and liability management, Asset valuation, Depreciation, Financial institutions, Investment incentives, National accounts, Stocks, Tax incentives, Taxes.

Model: Tax-adjusted q model extended to include both physical and intangible assets.
Data: A self-collected comprehensive database of intangible assets used for estimation.
Identification: Leveraging temporary tax changes (temporary investment tax incentives) to estimate the q model after adjusting for intangible stock and intangible intensity.

Ignoring intangible assets in q-based investment analysis leads to underestimation of the responsiveness of investment to temporary tax incentives.
Policy evaluations of temporary investment tax incentives should account for intangible intensity across firms and consider heterogeneous effects by firm size.

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