Investment-Decision Criteria, Investment Incentives and the Choice of Technique

Abstract

Postwar economic policy in the United Kingdom and other advanced capitalist economies has been increasingly concerned with the level and rate of increase of labour productivity, both at the national level and at industry and firm levels. One aspect of this concern has been successive attempts by governments to encourage investment expenditure through fiscal incentives; for example, initial allowances were introduced in the United Kingdom in 1946, investment allowances were introduced in 1954, they were combined in 1959 and they were replaced by cash investment grants in 1966. Over the same period there have been various attempts to encourage the finance of investment by internal funds, the latest of which is the corporation tax (1966), an avowed object of which is to lower dividend pay-out ratios and so, it is hoped, encourage internally financed investment expenditure.

* Originally published in the Economic Journal, vol. 78, 1968, 77–95. The writer is grateful to D. M. Nuti, Graham Pyatt, W. B. Reddaway, R. E. Rowthorn and G. Whittington for helpful comments, to M. Panić and Marion Clarke and her assistants for carrying out the preliminary calculations, to H. T. Burley for programming the main calculations for TITAN and to Professor M. V. Wilkes, Mathematical Laboratory, University of Cambridge, for the use of TITAN.