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A note on depreciation allowances, taxation and risk-taking

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  • Kai A. Konrad

    (University of Munich)

Abstract

Incentive effects of depreciation rules for risk-taking are considered. If true economic depreciation is stochastic, profit taxes with expected-value depreciation allowances decrease risk-taking. However, if real capital is used only in the risky sector, more generous depreciation allowances increase risk-taking. It is also shown that the incentive effect of risk-taking-revenue taxes to increase the risky fraction ofinvestment is stronger in the case ofmore generous depreciation allowances.

Suggested Citation

  • Kai A. Konrad, 1990. "A note on depreciation allowances, taxation and risk-taking," Finnish Economic Papers, Finnish Economic Association, vol. 3(2), pages 161-165, Autumn.
  • Handle: RePEc:fep:journl:v:3:y:1990:i:2:p:161-165
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    References listed on IDEAS

    as
    1. Koskela, Erkki & Kanniainen, Vesa, 1984. "Changing the Tax Base and Risk-Taking," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 162-174, March.
    2. Koskela, Erkki, 1984. "On the effects of differentiated income taxation on portfolio selection," Economics Letters, Elsevier, vol. 16(1-2), pages 145-150.
    3. Syed M. Ahsan, 1990. "Risk-Taking, Savings, and Taxation: A Re-examination of Theory and Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 408-433, May.
    4. Boadway, R. W. & Bruce, N., 1979. "Depreciation and interest deductions and the effect of the corporation income tax on investment," Journal of Public Economics, Elsevier, vol. 11(1), pages 93-105, February.
    5. Agnar Sandmo, 1977. "Portfolio Theory, Asset Demand and Taxation: Comparative Statics with Many Assets," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 369-379.
    6. J. E. Stiglitz, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, Oxford University Press, vol. 83(2), pages 263-283.
    7. Evsey D. Domar & Richard A. Musgrave, 1944. "Proportional Income Taxation and Risk-Taking," The Quarterly Journal of Economics, Oxford University Press, vol. 58(3), pages 388-422.
    8. Bulow, Jeremy I & Summers, Lawrence H, 1984. "The Taxation of Risky Assets," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 20-39, February.
    9. repec:jns:jbstat:v:205:y:1988:i:5:p:457-462:n:7 is not listed on IDEAS
    10. Sandmo, Agnar, 1974. "Investment Incentives and the Corporate Income Tax," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 287-302, Part I, M.
    11. Dammon, Robert M & Senbet, Lemma W, 1988. " The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage," Journal of Finance, American Finance Association, vol. 43(2), pages 357-373, June.
    12. Sinn Hans-Werner, 1988. "Beschleunigte steuerliche Abschreibungen: Verpuffende Anreize?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 205(5), pages 457-462, November.
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