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Investment Stimulation by a Depreciation Mechanism

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Author Info
Arkin Vadim ()
Arkina Svetlana ()
Slastnikov Alexander ()
Abstract

The authors investigate the possibility of utilizing the depreciation mechanism to provide incentives for undertaking investment in the real sector of the Russian economy. The proposed model of investor's behavior under risk and uncertainty considers a wide range of tax instruments The authors derive the optimal timing rule for investment and depreciation policy which maximizes tax payments into the regional budget. A comparative analysis of the former and new profit taxation systems is carried out. The authors discover interdependence of tax holidays and accelerated depreciation, and study the replacement of property tax by real estate tax. They investigate the possibilities of compensating for risk by reducing profit tax rate and changing depreciation policy, and prove the existence of risk zones for which these fiscal mechanisms are non-effective.

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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 02-05e.

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Length: 82 pages
Date of creation: 21 Feb 2003
Date of revision:
Handle: RePEc:eer:wpalle:02-05e

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Related research
Keywords: Russia; tax system; investment project; uncertainty and risk; depreciation; tax exemptions;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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  1. Yaozhong Hu & Bernt Øksendal, 1998. "Optimal time to invest when the price processes are geometric Brownian motions," Finance and Stochastics, Springer, vol. 2(3), pages 295-310. [Downloadable!] (restricted)
  2. Cummins, Jason G. & Hassett, Kevin A. & Hubbard, R. Glenn, 1996. "Tax reforms and investment: A cross-country comparison," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 237-273, October. [Downloadable!] (restricted)
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  3. Berg, M. & Waegenaere, A. de & Wielhouwer, J., 1996. "Optimal tax reduction by depreciation : A stochastic model," Discussion Paper 102, Tilburg University, Center for Economic Research. [Downloadable!]
  4. Forsfält, Tomas, 1999. "Taxation of Small Firms under Uncertainty - A Real Option View of Firm Creation," Research Papers in Economics 1999:17, Stockholm University, Department of Economics. [Downloadable!]
  5. Wielhouwer, J. & Kort, P.M. & Waegenaere, A. de, 1999. "Effects of tax depreciation on optimal firm investment," Discussion Paper 58, Tilburg University, Center for Economic Research. [Downloadable!]
  6. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November. [Downloadable!] (restricted)
  7. Wakeman, Lee MacDonald, 1980. "Optimal tax depreciation," Journal of Accounting and Economics, Elsevier, vol. 2(3), pages 213-237, December. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Mackie-Mason, Jeffrey K., 1990. "Some nonlinear tax effects on asset values and investment decisions under uncertainty," Journal of Public Economics, Elsevier, vol. 42(3), pages 301-327, August. [Downloadable!] (restricted)
  10. Arkin Vadim & Shevtsova Elmira & Slastnikov Alexander, 1999. "Tax Incentives for Investment Projects in the Russian Economy," EERC Working Paper Series 99-03e, EERC Research Network, Russia and CIS. [Downloadable!]
  11. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, Oxford University Press, vol. 4(1), pages 81-102, January.
  12. Abel, Andrew B., 1982. "Accelerated depreciation and the efficacy of temporary fiscal policy : Implications for an inflationary economy," Journal of Public Economics, Elsevier, vol. 19(1), pages 23-47, October. [Downloadable!] (restricted)
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