Capital cost recovery and depreciation vary across countries

The extent to which businesses across different industrialized countries can deduct their capital investments as depreciation differs, according to a new study that may help policymakers as well as global tax planners. 

The study, released Monday by the Tax Foundation, found that countries that are part of the Organization for Economic Cooperation and Development, should provide higher capital allowances, because they can bolster business investment which, in turn, spurs economic growth. 

The study found that the average of OECD countries' capital allowances gradually decreased between 2000 and 2017, but then increased between 2018 and 2022. In 2023 and 2024, capital allowances declined again, but increased in 2025 due to new temporary and permanent full expensing or enhanced capital allowances.

Researchers found that many temporary measures of accelerated depreciation that were introduced in response to the economic crisis in the wake of the pandemic expired in 2024. Last year, Canada reinstated full expensing and accelerated depreciation measures that had begun to phase out in 2024. The U.S. made full expensing for machinery and equipment permanent in the One Big Beautiful Bill Act and introduced temporary full expensing for industrial buildings. Germany and New Zealand also temporarily enhanced their capital allowance regimes.

"Permanency implies certainty, which is an essential factor for long-term investment decisions," wrote Tax Foundation economist Cristina Enache. "For instance, Canada's temporary expensing and accelerated depreciation provisions are likely to spur economic growth in the short term. The long-term effects, however, would be much higher if these changes were made permanent, as in the U.S. and the United Kingdom. Inflation and high interest rates also create a challenge for business investment that is exacerbated by long depreciation schedules. To put the global economy on a trajectory for growth, policymakers need to aim for more generous and permanent capital allowances. This will spur real investment and can also promote innovation, productivity growth, and competitiveness across the globe."

The study found that while inflation can further exacerbate investment deterrence, several countries are effectively responding to it. Mexico, Israel, and Chile are currently the only OECD countries that adjust capital allowances for inflation.