BIS Review 68/2004  3  Another uncertainty revolves around the effect of current tax policy on economic activity. Fiscal policy, which has been stimulative this year, is expected to shift to a fairly neutral stance in 2005, following the removal of the partial-expensing provision for various capital goods at the end of this year.
Because the partial-expensing provision allows firms to subtract a large share of the cost of new capital equipment from profits right away, rather than depreciating the cost over time, it provides an incentive to firms to invest in new capital goods. However, estimates of the quantitative effect of this tax incentive on investment are highly uncertain.