The Role of Tax Depreciation for Investment Decisions: A Comparison of European Transition Countries

This study compares incentive effects of various tax depreciation methods currently adopted in European transition economies. In these countries straight-line, geometric-degressive and accelerated depreciation measures are quite popular in combination with different corporate tax rates. Their generosity is determined on the basis of Samuelson’s true economic depreciation. For this purpose, the present value model is applied under the particular consideration of different financial structures. In this context the traditional Modigliani-Miller theorem for capital structure is revisited. Furthermore, the aspect of inflation is integrated into the model. The central issue is that the historical cost accounting method generally applied for the calculation of the corporate tax base causes fictitious profits in inflationary phases that are also taxed. Therefore, in an inflationary period generous tax depreciation provisions do not promote private investment as designed, but partly compensate such additional tax burdens caused by inflation.true economic depreciation, tax depreciation rules, corporate tax, investment decision, financial structure, net present value model, inflation, transition economies

Types of Tax Concessions for Attracting Foreign Direct Investment in Free Economic Zones

Not only transition countries but also a large number of developing (and developed) countries have established free economic zones (FEZs) with the aim of attracting foreign capital by providing tax incentives, creating employment opportunities and promoting exports as well as regional development. Major theoretical justifications for the establishment of such economic zones generally maintain that there are economies of scale in the development of land and in the provision of common services and utilities as well as external economies of agglomeration by having similar industries grouped together. One of the main characteristics of FEZs is the provision of generous tax investment promotion schemes solely allowed in this enclave. In general such measures include: (a) profit tax exemption, (b) free or accelerated depreciation, (c) investment tax allowance, (d) subsidy for investment costs, etc. The incentive e.ects of various tax concessions on firms’ investment decisions can be compared on the basis of the net present value model. Without taxation, the net present value (NPV) is equal to the present value of future gross return, discounted at an appropriate interest rate less investment cost. An investment project is therefore considered to be profitable when the NPV is positive. After introducing the corporate income tax, the present value of the asset generated from an investment amounts to the sum of the present value of net return (gross return less taxes) and the tax savings, led by, for example, an incentive depreciation provision. In this study the theoretical approach is accompanied by a model simulation based on selected parameters.tax concessions, free economic zone, investment decision, net present value

Effects of Corporate Tax Reforms on SMEs’ Investment Decisions under the Particular Consideration of Inflation

Corporate tax reforms carried out in EU countries since 1980 entail lower statutory tax rates and reductions in generous tax depreciation provisions. Several countries including the UK have reduced tax rates for SMEs. This study compares incentive effects of such reforms on the SMEs’ investment decisions adopting simple present value model. Ceteris paribus tax rate and depreciation rule vary in the model simulation, while the application of historical cost accounting method in inflationary phases leads to fictitious increases in nominal net present value. Apart from the construction of international ranking, country- specific patterns of reform effects are also illustrated.SMEs, corporate tax reform, investment decision, inflation, EU countries

Does Debt Maturity Matter for Investment Decisions?

In the conventional literature related to investment decisions, less attention has been paid to the length of maturity when investment is debt-financed. In such a case a firm pays the creditor not only the sum of annual interest (initial investment cost multiplied by real interest rate) for the entire borrowing years but also the total amount of initial investment cost at the end of the borrowing period. In this study, the effects of selecting different maturity years on firms’ investment decisions are compared on the basis of the simple net present value (NPV) model. Without taxation, the NPV is equal to the present value (PV) of future gross return less the PV of the cost of investment. An investment project is considered to be profitable when the NPV is positive. After the introduction of a corporate income tax, the PV of an asset amounts to the sum of PVs of net return (gross return less taxes) and tax savings led by an incentive depreciation provision. If the investment is debt-financed, the interest payment additionally reduces the corporate tax base. The research findings suggest that (1) ceteris paribus an optimum maturity year appears to exist that maximises the NVP, and (2) the change of optimum debt maturity tends to correlate positively with the corporate tax rate but negatively with the interest rate. In the case of prevailing inflation, there is a mismatch between the nominal interest rate that is a discounting factor for all observed in- and outflows and the real interest rate by which the annual interest payment is determined for the entire maturity period.debt maturity, investment decision, net present value, corporate taxation, inflation

Effects of Tax Depreciation Rules on Firms' Investment Decisions: A Comparison of European Transition Countries

Steuerbegünstigung, Abschreibung, Investition, Betriebswirtschaftliche, Investitionstheorie, Unternehmensbesteuerung, Optimale Besteuerung, Steuerwirkung, Vergleich, Theorie, Osteuropa, Tax incentive, Depreciation, Investment, Investment theory (Business), Corpo-rate taxation, Optimal taxation, Effects of taxation, Comparison, Theory, Eastern Europe

Types of Tax Concessions for Promoting Investment in Free Economic and Trade Areas

Apart from the countries in transition, a large number of developing (and also developed) countries have also established free economic and trade areas(FETA) with the aim of attracting foreign capital by providing tax incentives, creating employment opportunities and promoting exports and regional development. Major theoretical justifications for the establishement of such economic zones generally maintain that there are economies of scale in the development of land and in the provision of common services and utilities as well as external economies of agglomeration by having similar industries grouped together. As mentioned above, one of the crucial characteristics of the FETA is the provision of generous tax promotion schemes solely allowed in this enclave. In general such measures include: (a) profit tax exemption, (b) free or accelerated depreciation, (c) investment tax allowance, (d) subsidy for investment costs, etc. The incentive effects of various tax concessions on firms' investment decisions can be compared on the basis of the net present value model. Without taxation, the net present value (NPV) is equal to the present value of future gross return, discounted at an appropriate interest rate less the present value of the investment cost. An investment project is therefore considered to be profitable when the NPV is positive. After the introduction of tax on corporate income, the present value of the asset generatd from an investment amounts to the sum of present value of net return (gross return less taxes) and tax savings led by an incentive depreciation provision, for example. In the study the theoretical approach is accompanied by a model simulation based on the selected parameters.

Enhanced thermoelectric performance by surface engineering in SnTe-PbS nanocomposites

Thermoelectric materials enable the direct conversion between heat and electricity. SnTe is a promising candidate due to its high charge transport performance. Here, we prepared SnTe nanocomposites by employing an aqueous method to synthetize SnTe nanoparticles (NP), followed by a unique surface treatment prior NP consolidation. This synthetic approach allowed optimizing the charge and phonon transport synergistically. The novelty of this strategy was the use of a soluble PbS molecular complex prepared using a thiol-amine solvent mixture that upon blending is adsorbed on the SnTe NP surface. Upon consolidation with spark plasma sintering, SnTe-PbS nanocomposite is formed. The presence of PbS complexes significantly compensates for the Sn vacancy and increases the average grain size of the nanocomposite, thus improving the carrier mobility. Moreover, lattice thermal conductivity is also reduced by the Pb and S-induced mass and strain fluctuation. As a result, an enhanced ZT of ca. 0.8 is reached at 873 K. Our finding provides a novel strategy to conduct rational surface treatment on NP-based thermoelectrics

The Stability-Concentration Relationship in the Brazilian Banking System

In this article the relation between non-performing loans (NPL) of the Brazilian banking system and macroeconomic factors, systemic risk and banking concentration is empirically tested. While evaluating this relation, we use a dynamic specification with fixed effects, using a panel data approach. The empirical results indicate that the banking concentration has a statistically significant impact on NPL, suggesting that more concentrated banking systems may improve financial stability. These results are important for the design of banking regulation policies.