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Impact of the Section 179 tax deduction on machinery investment

Joleen C. Hadrich (Colorado State University, Fort Collins, Colorado, USA)
Ryan Larsen (North Dakota State University, Fargo, North Dakota, USA)
Frayne E. Olson (North Dakota State University, Fargo, North Dakota, USA)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 4 November 2013

419

Abstract

Purpose

The purposes of this paper are to determine the financial, structural, and tax policy factors that influence the probability of buying machinery and the intensity of the machinery purchases on North Dakota farming operations.

Design/methodology/approach

A double hurdle model was used to estimate the two decisions: purchasing machinery and the intensity of the machinery purchase. Data were collected from the North Dakota Farm and Ranch Management Business Association Annual Summaries for 1993-2011.

Findings

Results demonstrated that the tax incentive provided by Section 179 deduction had the largest positive effect on machinery purchases when compared to operating profit margin, leverage ratio, producer type, and experience of the principal operator of the farm.

Originality/value

Section 179 deductions have changed substantially over the 19-year period studied and have not been analyzed in previous machinery investment work. This analysis puts a numerical value on the effect of Section 179 deductions over time and demonstrates the large effect tax incentives have on machinery purchase decisions and levels.

Keywords

Citation

C. Hadrich, J., Larsen, R. and E. Olson, F. (2013), "Impact of the Section 179 tax deduction on machinery investment", Agricultural Finance Review, Vol. 73 No. 3, pp. 458-468. https://doi.org/10.1108/AFR-07-2012-0035

Publisher

:

Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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