Economic vs. accounting depreciation

Moshe Kim; Giora Moore

doi:10.1016/0165-4101(88)90016-X

Economic vs. accounting depreciation

Moshe Kim, Giora Moore

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

In this paper we present and estimate a model of economic depreciation consistent with producer's optimization. The estimated economic depreciation, which is a function of the rate of utilization and level of maintenance, is about half of that used according to tax (accounting) depreciation. The difference between the economic and tax rates of depreciation results in a subsidy and earlier capital replacement. The implicit maximum net tax subsidy expressed as a proportion of the acquisition price of the asset is 13.3% for a sample of Canadian trucking firms.

Original language	English
Pages (from-to)	111-125
Number of pages	15
Journal	Journal of Accounting and Economics
Volume	10
Issue number	2
DOIs	https://doi.org/10.1016/0165-4101(88)90016-X
State	Published - Apr 1988

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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10.1016/0165-4101(88)90016-X

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abstract = "In this paper we present and estimate a model of economic depreciation consistent with producer's optimization. The estimated economic depreciation, which is a function of the rate of utilization and level of maintenance, is about half of that used according to tax (accounting) depreciation. The difference between the economic and tax rates of depreciation results in a subsidy and earlier capital replacement. The implicit maximum net tax subsidy expressed as a proportion of the acquisition price of the asset is 13.3% for a sample of Canadian trucking firms.",

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AB - In this paper we present and estimate a model of economic depreciation consistent with producer's optimization. The estimated economic depreciation, which is a function of the rate of utilization and level of maintenance, is about half of that used according to tax (accounting) depreciation. The difference between the economic and tax rates of depreciation results in a subsidy and earlier capital replacement. The implicit maximum net tax subsidy expressed as a proportion of the acquisition price of the asset is 13.3% for a sample of Canadian trucking firms.

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Economic vs. accounting depreciation

Abstract

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