Optimal Dynamic Investment Policy Under Different Rates for Tax Depreciation and Economic Depreciation

Tilburg University, CentER Working Paper No. 1999-59

30 Pages Posted: 23 Mar 2000

See all articles by J. Wielhouwer

J. Wielhouwer

VU University Amsterdam

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Peter M. Kort

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER)

Date Written: July 5, 1999

Abstract

This paper analyzes the consequences of incorporating a different rate for tax depreciation than for economic depreciation. Firms most often choose their tax depreciation rate in a strategic way. It would therefore be a coincidence if this optimization process leads to a tax depreciation rate that equals the economic depreciation rate. The implications of a difference between tax depreciation and economic depreciation are investigated in an optimal control model for the determination of the firm's optimal investment policy over time.

Keywords: optimization, optimal, control, investment, depreciation, taxation

JEL Classification: C61, E22

Suggested Citation

Wielhouwer, Jacco L. and De Waegenaere, Anja M.B. and Kort, Peter, Optimal Dynamic Investment Policy Under Different Rates for Tax Depreciation and Economic Depreciation (July 5, 1999). Tilburg University, CentER Working Paper No. 1999-59. Available at SSRN: https://ssrn.com/abstract=199737 or http://dx.doi.org/10.2139/ssrn.199737

Jacco L. Wielhouwer

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Peter Kort (Contact Author)

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

HOME PAGE: http://center.uvt.nl/staff/kort/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

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