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Title:A simple explanation for the unfavorable tax treatment of investment costs PDF Logo
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.
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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