A note on depreciation allowances, taxation and risk-taking

Kai Konrad

Finnish Economic Papers, 1990, vol. 3, issue 2, 161-165

Abstract: Incentive effects of depreciation rules for risk-taking are considered. If true economic depreciation is stochastic, profit taxes with expected-value depreciation allowances decrease risk-taking. However, if real capital is used only in the risky sector, more generous depreciation allowances increase risk-taking. It is also shown that the incentive effect of risk-taking-revenue taxes to increase the risky fraction ofinvestment is stronger in the case ofmore generous depreciation allowances.

Date: 1990
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