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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Designer, Dan Carvajal
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Capital Cost Recovery
across the OECD
• A capital allowance is the amount of capital investment costs a business can
deduct from its revenue through the tax code via depreciation.
• Higher capital allowances can boost investment which, in turn, spurs
• The average of Organisation for Economic Co-operation and Development
(OECD) countries’ capital allowances has decreased since 2000, including a
slight increase in 2018.
• Estonia and Latvia have the best capital cost recovery systems in the OECD.
• Chile has the worst treatment of capital investments in the OECD, with no
allowance for intangibles and poor treatment of investments in machinery.
• The capital allowances outlined in the European Union’s Common Corporate
Tax Base (CCTB) proposal are on average lower than the current capital
allowances in half of the EU member states.
• Several smaller countries have lower corporate income tax rates and higher
capital allowances, making them more attractive for capital investment.
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Although sometimes overlooked in discussions about corporate taxation, capital cost recovery
plays an important role in defining a business’s tax base and can impact investment decisions—with
far-reaching economic consequences. When businesses are not allowed to fully deduct capital
expenditures, they spend less on capital, which reduces worker productivity and wages.1
Since 2000, statutory corporate income tax rates have declined signific