The Role of Tax Depreciation for Investment Decisions: A Comparison of European Transition Countries

Chang Woon Nam and Doina Radulescu

Eastern European Economics, 2005, vol. 43, issue 5, 5-24

Abstract: This study compares incentive effects of various tax depreciation methods currently adopted in European transition economies. In these countries, straight-line, geometric-degressive, and accelerated depreciation measures are quite popular, in combination with different corporate tax rates. Their generosity is determined on the basis of Samuelson's true economic depreciation. For this purpose, the present value model is applied under the particular consideration of different financial structures. In this context, the traditional Modigliani-Miller theorem for capital structure is revisited. Furthermore, the aspect of inflation is integrated into the model. The central issue is that the historical cost accounting method generally applied for the calculation of the corporate tax base causes fictitious profits in inflationary phases that are also taxed. Therefore, in an inflationary period, generous tax depreciation provisions do not promote private investment as designed, but partly compensate such additional tax burdens caused by inflation.

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://mesharpe.metapress.com/link.asp?target=contribution&id=1D267EP7HEW2DALE (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Role of Tax Depreciation for Investment Decisions: A Comparison of European Transition Countries (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:eaeuec:v:43:y:2005:i:5:p:5-24

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MEEE20

Access Statistics for this article

More articles in Eastern European Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().