Leasing and the Cost of Capital
A model of firm financial and investment behaviour when there is a possibility of tax exhaustion is used to analyse the incentives for firms to act as lessees or lessors and the determination of the equilibrium rental rate in the leasing market. A number of results emerge which are relevant for public policy. It is shown that: (i) leasing may diminish aggregate investment by comparison with the situation when it does not occur; (ii) rents are likely to be earned on leasing activities; and (iii) a purely tax-induced positive relationship exists between aggregate investment and corporate profits.
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|Authors:||Mayer, Colin ; Edwards, Jeremy|
|Type of publication:||Article|
Mayer, Colin and Edwards, Jeremy (1991) Leasing and the Cost of Capital. Journal of Public Economics, 44 (2). pp. 173-197.