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Investment Stimulation by a Depreciation Mechanism

Author

Listed:
  • 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.

Suggested Citation

  • Arkin Vadim & Arkina Svetlana & Slastnikov Alexander, 2003. "Investment Stimulation by a Depreciation Mechanism," EERC Working Paper Series 02-05e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:02-05e
    as

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    References listed on IDEAS

    as
    1. Yaozhong Hu & Bernt ├śksendal, 1998. "Optimal time to invest when the price processes are geometric Brownian motions," Finance and Stochastics, Springer, vol. 2(3), pages 295-310.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Inman, Robert P. & Rubinfeld, Daniel L., 1996. "Designing tax policy in federalist economies: An overview," Journal of Public Economics, Elsevier, vol. 60(3), pages 307-334, June.
    7. repec:bla:joares:v:36:y:1998:i:2:p:357-363 is not listed on IDEAS
    8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    9. Berg, M. & De Waegenaere, A.M.B. & Wielhouwer, J.L., 1996. "Optimal Tax Reduction by Depreciation : A Stochastic Model," Discussion Paper 1996-102, Tilburg University, Center for Economic Research.
    10. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, World Bank Group, vol. 4(1), pages 81-102, January.
    11. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    12. Wielhouwer, J.L. & Kort, P.M. & De Waegenaere, A.M.B., 1999. "Effects of tax depreciation on optimal firm investments," Discussion Paper 1999-58, Tilburg University, Center for Economic Research.
    13. Wakeman, Lee MacDonald, 1980. "Optimal tax depreciation," Journal of Accounting and Economics, Elsevier, vol. 2(3), pages 213-237, December.
    14. 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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    More about this item

    Keywords

    Russia; tax system; investment project; uncertainty and risk; depreciation; tax exemptions;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - 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 - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; 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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