A Statistical Test of the Stability Assumption Inherent in Empirical Estimates of Economic Depreciation

Realistic estimates of economic depreciation are required for analyses of tax policy, economic growth and production, and national income and wealth. The purpose of this paper is to examine the stability assumption underlying the econometric derivation of empirical estimates of economic depreciation for industrial machinery and equipment. The results suggest that a reasonable stability of economic depreciation rates of decline may exist over time. Thus, the assumption of a constant rate of economic depreciation may be a reasonable approximation for further empirical economic analyses.