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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/25829
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| Title: | | A simple explanation for the unfavorable tax treatment of investment costs  |
| Authors: | | Panteghini, Paolo M. |
| Issue Date: | | 2006 |
| Series/Report no.: | | CESifo working paper 1784 |
| Abstract: | | The evidence shows that in most countries the present value of depreciation allowances is less than 100% of the cost of capital. In this article we use a real-option model with debt financing, and show that less favorable depreciation allowances are offset by tax benefits arising from debt financing. Allowing partial deduction of capital cost is thus a necessary condition for investment neutrality to hold. |
| JEL: | | D92 G33 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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