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
Date Written: July 5, 1999
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: Suggested Citation