Full text: Policies of Stimulating Private Investment

Policies of Stimulating Private Investment 
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As a start to the following discussion we discuss the way- 
in which the policy of tax allowances to investors works. 
Roughly speaking it means that, if the investor can write off 
say one fourth of the investment straight away his expected 
, because 
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profit rate will be increased by a factor of 
his capital investment is effectively reduced by the amount 
of the permitted immediate depreciation. 
Now let us distinguish two cases, in one case the point of 
the policy is not to increase investment because that is 
given beforehand as a matter of public policy: That is 
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the case of power stations and perhaps other utilities. 
They are obliged to provide an adequate capacity and the 
question is only that of finance and price of the electricity. 
They could finance by charging an adequate price which 
would give them sufficient retained profit - the Eichnerian 
policy ( again they could borrow if the price of electricty 
would be suffincient to permit them to service the debt ). 
Now the tax allowance in these cases is obviously a means of 
subsidising the buyer of electricity by a lower than 
"market" price, which the utility will be enabled to charge. 
The other case is that in which the tax policy aims at 
increasing the investment. The prospect of an increased profit 
rate to be expected should induce additional investment. 
Now an essential worry of any investor is whether he will 
find the market for the additional capacity created. 
It may be objected that not all investment need involve 
additional capacity and in these cases our considerations will 
not apply. This has to be accepted with the proviso that
	        

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