Optimal dynamic investment policy for different tax depreciation rates and economic depreciation rates

Optimal dynamic investment policy for different tax depreciation rates and economic depreciation rates

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Article ID: iaor20011851
Country: United States
Volume: 106
Issue: 1
Start Page Number: 23
End Page Number: 48
Publication Date: Jul 2000
Journal: Journal of Optimization Theory and Applications
Authors: , ,
Keywords: taxation
Abstract:

This paper analyzes the investment policy consequences of incorporating a tax depreciation rate different from the economic depreciation rate. Most often, firms choose their tax depreciation rate in a strategic way. Therefore, it would be a coincidence, should the optimization process lead to a tax depreciation rate that equals the economic depreciation rate. The implications of a difference between tax depreciation rate and economic depreciation rate are investigated in an optimal control model for the determination of the firm investment policy over time.

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