The research on capital accumulation rarely addresses the nature of capital deterioration. This paper is focused on the deterioration of the capital stock. In particular, the endogenous nature of deterioration is emphasized. The paper begins with a short summary of capital accumulation in order to introduce the relevant issues. Then a general framework is developed and the impact of endogenous deterioration is analyzed in a model without taxes. Subsequently, a tax system is added to the model and the tax ramifications of endogenous deterioration are discussed. Lastly, comparative statics are developed and discussed.; A summary of the conclusions is that the endogenous nature of deterioration has a significant impact on the capital accumulation process and the taxation of capital. The firm has the option of maintaining the current stock of capital or allowing the capital stock to deteriorate in anticipation of replacing the asset. The tax system will influence the relationship between maintenance and capital because they are taxed differently. It is shown that maintenance and utilization can be considered inputs into the production process and at times may be considered substitutes for capital.
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