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Measuring the Cost of Capital Services

By Tideman, T. Nicolaus

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Book Id: WPLBN0000697069
Format Type: PDF eBook
File Size: 476.62 KB.
Reproduction Date: 2005
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Title: Measuring the Cost of Capital Services  
Author: Tideman, T. Nicolaus
Language: English
Subject: Government publications, Economics., United States. Department of the Treasury--Appropriations and Expenditures.
Collections: U.S. Department of the Treasury Collection
Publication Date:
Publisher: United States Department of the Treasury


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Tideman, T. N. (n.d.). Measuring the Cost of Capital Services. Retrieved from

Government Reference Publication

Introduction: Hall and Jorgenson developed a formula for the price of capital services that is widely used. Their formula, however, fails to distinguish between the real discount rate for future services of capital and the nominal discount rate for depreciation. It also adjusts the discount rate to allow for the deductibility of interest, when the proper procedure is to include interest as an explicit deduction, like depreciation. The Hall-Jorgenson procedure yields the correct answer in the special case of exponential decay and tax depreciation equal to economic depreciation, but not in general.

Table of Contents
TABLE OF CONTENTS Page I. Introduction ....................... 1 11. The Price of Capital Services .............. 2 111. Tax Rules for Neutrality ................. 8 A. Equalization of Rates of Return ........... 8 B. Tax Neutrality in the Absence of Inflation ...... 8 C. Tax Neutrality with Respect to Inflation ....... 9 D. Tax Neutrality between Debt and Equity Financing ... 10 E. A Neutral Investment Tax Credit with Respect to the Longevity of Capital ................. 12 F. Neutrality toward Appreciating Assets ........ 13


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