Depreciation rules and value invariance with extractive firms

The application of Samuelson's theorem on value invariance to the case of i ntertemporally optimizing firms is shown to require a judiciously chosen ec onomic depreciation formula which depends on both current stock and current flow variables, in order to prevent the firms from changing their actions in the face of the tax regime. We illustrate by deriving depreciation rules which achieve non-distortingness of actions and value-invariance for resou rce-extracting firms. (C) 2002 Elsevier Science B.V. All rights reserved.