Dynamic Tax Depreciation Strategies
AbstractThe tax depreciation decision potentially has significant impact on the prof- itability of firms and projects. Indeed, the depreciation method chosen for tax purposes affects the timing of tax payments, and, as a consequence, it also affects the after-tax net present value of investment projects. Previous research focusses on the optimal choice of depreciation method under the assumption that the de- preciation method has to be set ex ante and cannot be changed during the useful life of the asset. In reality however, changes are allowed under certain circum- stances. This paper develops a dynamic programming approach to determine the firm’s optimal choice with regard to the initial depreciation method, and whether changes of method are proposed in later periods.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-87.
Date of creation: 2008
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Tax depreciation; Net Present Value; Dynamic Programming;
Other versions of this item:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-01-31 (Accounting & Auditing)
- NEP-ALL-2009-01-31 (All new papers)
- NEP-PBE-2009-01-31 (Public Economics)
- NEP-PPM-2009-01-31 (Project, Program & Portfolio Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wielhouwer, Jacco L. & Waegenaere, Anja De & Kort, Peter M., 2002.
"Optimal tax depreciation under a progressive tax system,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 27(2), pages 243-269, December.
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- Wielhouwer, J.L. & De Waegenaere, A.M.B. & Kort, P.M., 2000. "Optimal Tax Depreciation under a Progressive Tax System," Discussion Paper 2000-51, Tilburg University, Center for Economic Research.
- Wakeman, Lee MacDonald, 1980. "Optimal tax depreciation," Journal of Accounting and Economics, Elsevier, vol. 2(3), pages 213-237, December.
- Wielhouwer, J.L. & De Waegenaere, A.M.B. & Kort, P.M., 2000. "Optimal dynamic investment policy for different tax depreciation rates and economic depreciation rates," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84062, Tilburg University.
- Berg, Menachem & Waegenaere, Anja De & Wielhouwer, Jacco L., 2001. "Optimal tax depreciation with uncertain future cash-flows," European Journal of Operational Research, Elsevier, vol. 132(1), pages 197-209, July.
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