The effect of depreciation allowances on the timing of investment and government tax revenue

Vadim Arkin and Alexander Slastnikov ()

Annals of Operations Research, 2007, vol. 151, issue 1, 307-323

Abstract: We develop a model of the behavior of a potential investor (under uncertainty and in a fiscal environment) who wishes to invest into a project in the real sector of an economy and faces a timing problem. We find an optimal solution within this model and examine the dependence of the tax revenue from the newly created firm on the depreciation policy. It is shown that there exists a domain in the space of the parameters of the investment project where both the tax revenue and the incentives can be increased by using the depreciation policy. Copyright Springer Science+Business Media, LLC 2007

Keywords: Corporate taxation; Depreciation policy; Stochastic cash flows; Investment timing; Net present value; Tax revenue (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s10479-006-0121-9

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