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Gross vs. Net Investment, Pre- and Post-TCJA

Summary:
In other words, the sugar high fades. Brad Setser has noted how weak nonresidential fixed investment has been, despite the TCJA. It looks worse when looking at net — rather than gross — investment. Figure 1: Gross nonresidential fixed investment (blue, left log scale), and estimated net nonresidential fixed investment (brown, right log scale), all in billions Ch. 2012$, SAAR. Net investment calculated by subtracting quadratically interpolated annual capital consumption, and assuming annualized 0.08% increase throughout 2019. Light orange denotes TCJA in full effect, very light orange denotes TCJA application to equipment. Source: BEA and author’s calculations.

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In other words, the sugar high fades. Brad Setser has noted how weak nonresidential fixed investment has been, despite the TCJA. It looks worse when looking at net — rather than gross — investment.

Figure 1: Gross nonresidential fixed investment (blue, left log scale), and estimated net nonresidential fixed investment (brown, right log scale), all in billions Ch. 2012$, SAAR. Net investment calculated by subtracting quadratically interpolated annual capital consumption, and assuming annualized 0.08% increase throughout 2019. Light orange denotes TCJA in full effect, very light orange denotes TCJA application to equipment. Source: BEA and author’s calculations. 

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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