Optimal tax depreciation under a progressive tax system. (Q1853194): Difference between revisions
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Property / cites work: Optimal dynamic investment policy for different tax depreciation rates and economic depreciation rates / rank | |||
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Latest revision as of 11:28, 30 July 2024
scientific article
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English | Optimal tax depreciation under a progressive tax system. |
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Optimal tax depreciation under a progressive tax system. (English)
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21 January 2003
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The focus of this paper is on the effect of a progressive tax system on optimal tax depreciation. By using dynamic optimization we show that an optimal strategy exists, and we provide an analytical expression for the optimal depreciation charges. Depreciation charges initially decrease over time, and after a number of periods the firm enters a steady state where depreciation is constant and equal to replacement investments. This way, the optimal solution trades off the benefits of accelerated depreciation (because of discounting) and of constant depreciation (because of the progressive tax system). We show that the steady state will be reached sooner when the initial tax base is lower or when the discounting effect is stronger.
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tax system
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dynamic optimization
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optimal depreciation
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