Leasing and the Cost of Capital

Mayer, Colin and Edwards, Jeremy (1991) Leasing and the Cost of Capital. Journal of Public Economics, 44 (2). pp. 173-197.


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.

Item Type: Article
Keywords: Taxation; Leases; Models; Investment; finance
Subject(s): Finance
Date Deposited: 18 Feb 2012 20:20
Last Modified: 27 Feb 2017 15:13
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/2176

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