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

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Abstract

This paper analyzes the investment policy consequences of incorporating a tax depreciation rate different from the economic depreciation rate. Most often, firms choose their tax depreciation rate in a strategic way. Therefore, it would be a coincidence, should the optimization process lead to a tax depreciation rate that equals the economic depreciation rate. The implications of a difference between tax depreciation rate and economic depreciation rate are investigated in an optimal control model for the determination of the firm investment policy over time.

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Authors and Affiliations

  1. CentER, Tilburg University, Tilburg, Netherlands

    J. L. Wielhouwer (Research Assistant)

  2. Department of Econometrics and CentER, Tilburg University, Tilburg, Netherlands

    A. De Waegenaere (Assistant Professor)

  3. Department of Econometrics and CentER, Tilburg University, Tilburg, Netherlands

    P. M. Kort (Associate Professor)

Authors
  1. J. L. Wielhouwer
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  2. A. De Waegenaere
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  3. P. M. Kort
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Wielhouwer, J.L., De Waegenaere, A. & Kort, P.M. Optimal Dynamic Investment Policy for Different Tax Depreciation Rates and Economic Depreciation Rates. Journal of Optimization Theory and Applications 106, 23–48 (2000). https://doi.org/10.1023/A:1004650906179

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  • DOI: https://doi.org/10.1023/A:1004650906179

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