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Tax policy and farm capital investment: Section 179 expensing and bonus depreciation

James M Williamson (Department of Agriculture, Economic Research Service, Washington, District of Columbia, USA)
Sarah Stutzman (Department of Agricultural Economics, Purdue University, West Lafayette, Indiana, USA)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 4 July 2016




The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment.


The authors construct a synthetic panel of data consisting of cohorts of similar farms based on state and production specialization using the USDA’s Agricultural Resource Management Survey for years 1996-2012. Employing panel data methods, the authors are able to control for time-invariant fixed effects, as well as the effects of past investment on current investment.


The authors estimate statistically significant investment demand elasticities with respect to the Section 179 expensing deduction of between 0.28 and 0.50. A change in bonus depreciation, on average, had little impact on capital investment.

Practical implications

The estimates suggest there is a modest effect of the cost recovery provisions on investment overall, but a stronger effect on farms that have more than $10,000 in gross cash farm income. There are other implications for the agricultural sector: the provisions may encourage technology adoption with its associated benefits, such as reduced cost of production and improved conservation practices. On the other hand, the policy could contribute to the growing concentration in production as large commercial farms expand their operated acreage to take advantage of increasingly efficient physical capital.


To the authors’ knowledge, this is the first research to use a nationally representative dataset to estimate to impact of Section 179 and “bonus depreciation” on farm investment. The findings provide evidence of the provisions’ impact on farm capital purchases.



Williamson, J.M. and Stutzman, S. (2016), "Tax policy and farm capital investment: Section 179 expensing and bonus depreciation", Agricultural Finance Review, Vol. 76 No. 2, pp. 246-269.



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