Optimal tax depreciation under a progressive tax system
AbstractThe focus of this paper is on the effect of a progressive tax system on optimal tax depreciation. By using dynamic optimization we show that an optimal strategy exists, and we provide an analytical expression for the optimal depreciation charges. Depreciation charges initially decrease over time, and after a number of periods the firm enters a steady state where depreciation is constant and equal to replacement investments. This way, the optimal solution trades off the benefits of accelerated depreciation (because of discounting) and of constant depreciation (because of the progressive tax system). We show that the steady state will be reached sooner when the initial tax base is lower or when the discounting effect is stronger.
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Bibliographic InfoPaper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-89713.
Date of creation: 2002
Date of revision:
Publication status: Published in Journal of Economic Dynamics and Control (2002) v.27, p.243-269
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Web page: http://www.tilburguniversity.edu/
Other versions of this item:
- 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.
- 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.
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- 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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- Kulp, Alison & Hartman, Joseph C., 2011. "Optimal tax depreciation with loss carry-forward and backward options," European Journal of Operational Research, Elsevier, vol. 208(2), pages 161-169, January.
- Adkins, Roger & Paxson, Dean, 2013. "The effect of tax depreciation on the stochastic replacement policy," European Journal of Operational Research, Elsevier, vol. 229(1), pages 155-164.
- De Waegenaere, A.M.B. & Wielhouwer, J.L., 2008.
"Dynamic Tax Depreciation Strategies,"
2008-87, Tilburg University, Center for Economic Research.
- Wielhouwer, J.L., 2002. "Optimal Tax Depreciation and its Effects on Optimal Firm Investments," Open Access publications from Tilburg University urn:nbn:nl:ui:12-89396, Tilburg University.
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