Part Three: New Versus Old Business and Complexity
April 29, 2002
When policy makers decide that they are going to grant a temporary write-off for new capital investments, they essentially conclude that its macroeconomic advantages exceed other alternatives. However, incentive effects apply more powerfully to established or old business than to new business -- a potential threat to innovation. New temporary allowances also set in motion additional accounting requirements that both increase complexity and encourage firms to play games with the timing of billing or delivery of assets.