Abstract
The microeconomic and macroeconomic effects of the investment tax credit (ITC) on leasing are analyzed. It is found that under certain specified conditions a) even if the lessor and lessee pay sufficient income taxes so that either can fully take the ITC on a leased asset, the optimal strategy is for the party (lessor or lessee) in the higher tax bracket to take the credit, and b) the ITC favors leasing relative to sales to users.
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