Optimal Tax Reduction by Depreciation: A Stochastic Model

M. Berg, A.M.B. De Waegenaere, J.L. Wielhouwer

Research output: Working paperDiscussion paperOther research output

266 Downloads (Pure)

Abstract

This paper focuses on the choice of a depreciation method, when trying to minimize the expected value of the present value of future tax payments.In a quite general model that allows for stochastic future cash- ows and a tax structure with tax brackets, we determine the optimal choice between the straight line depreciation method and a speci c accelerated depreciation method. We show how the distributions of the cash- ows, the discount rate, and the tax structure can in uence the optimal decision.These results are illustrated by numerical examples.Contrarily to what is often assumed, the fact that future money is discounted does not necessarily imply that an accelerated depreciation method is preferable to a straight line method.
Original languageEnglish
Place of PublicationTilburg
PublisherAccounting
Number of pages16
Volume1996-102
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper
Volume1996-102

Keywords

  • stochastic processes
  • taxation
  • depreciation

Fingerprint Dive into the research topics of 'Optimal Tax Reduction by Depreciation: A Stochastic Model'. Together they form a unique fingerprint.

  • Cite this

    Berg, M., De Waegenaere, A. M. B., & Wielhouwer, J. L. (1996). Optimal Tax Reduction by Depreciation: A Stochastic Model. (CentER Discussion Paper; Vol. 1996-102). Accounting.