Within the framework of the neoclassical theory of investment and capital this article discusses the effect of the corporate income tax on investment incentives, particularly with respect to capital goods of different degrees of durability. Sources of distortion are sought in the treatment of depreciation, in incomplete interest deductions, and in the treatment of capital gains. Depending on the relative magnitudes of .he parameters involved, the corporate income tax may change relative prices in favor of either short-term or long-term capital goods.