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The effect of straight-line and accelerated depreciation rules on risky investment decisions: An experimental study


  • Ackermann, Hagen
  • Fochmann, Martin


The aim of this study is to analyze how depreciation rules influence the decision behavior of investors. For this purpose, we conduct a laboratory experiment in which participants decide on the composition of an asset portfolio in different choice situations. Using an experimental environment with different payment periods, we show that accelerated compared to straight-line depreciation can increase the willingness to invest as hypothesized by theory. Additionally, we are able to replicate the unexpected finding of Ackermann et al. (2013) - that introducing a subsidy leads to a lower willingness to take risk although the net returns are kept constant - with our setting which is different to their experimental environment.

Suggested Citation

  • Ackermann, Hagen & Fochmann, Martin, 2014. "The effect of straight-line and accelerated depreciation rules on risky investment decisions: An experimental study," arqus Discussion Papers in Quantitative Tax Research 158, arqus - Arbeitskreis Quantitative Steuerlehre.
  • Handle: RePEc:zbw:arqudp:158

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    References listed on IDEAS

    1. Martin Feldstein, 1983. "Inflation, Tax Rules, and Investment: Some Econometric Evidence," NBER Chapters,in: Inflation, Tax Rules, and Capital Formation, pages 243-286 National Bureau of Economic Research, Inc.
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    3. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?: How deliberation and experience shape voting on taxes," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 164-176, February.
    4. Djanali, Iwan & Sheehan-Connor, Damien, 2012. "Tax affinity hypothesis: Do we really hate paying taxes?," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 758-775.
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    6. de Bartolome, Charles A. M., 1995. "Which tax rate do people use: Average or marginal?," Journal of Public Economics, Elsevier, vol. 56(1), pages 79-96, January.
    7. Jackson, Scott B. & (Kelvin) Liu, Xiaotao & Cecchini, Mark, 2009. "Economic consequences of firms' depreciation method choice: Evidence from capital investments," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 54-68, October.
    8. Ackermann, Hagen & Fochmann, Martin & Mihm, Benedikt, 2013. "Biased effects of taxes and subsidies on portfolio choices," Economics Letters, Elsevier, vol. 120(1), pages 23-26.
    9. Naomi E. Feldman & Bradley J. Ruffle, 2012. "The impact of tax exclusive and inclusive prices on demand," Finance and Economics Discussion Series 2012-50, Board of Governors of the Federal Reserve System (U.S.).
    10. Fochmann, Martin & Kiesewetter, Dirk & Sadrieh, Abdolkarim, 2012. "Investment behavior and the biased perception of limited loss deduction in income taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 230-242.
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    13. Martin Fochmann & Dirk Kiesewetter & Abdolkarim Sadrieh, 2012. "The Biased Effect of Aggregated and Disaggregated Income Taxation on Investment Decisions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(3), pages 519-545, September.
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    16. Martin Fochmann & Joachim Weimann & Kay Blaufus & Jochen Hundsdoerfer & Dirk Kiesewetter, 2013. "Net Wage Illusion in a Real-Effort Experiment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(2), pages 476-484, April.
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    More about this item


    Taxation; Straight-line Depreciation; Accelerated Depreciation; Tax Perception; Risk Taking Behavior; Portfolio Choice; Behavioral Taxation;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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