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A MULTIPERIOD LINEAR PROGRAMMING ANALYSIS OF INCOME TAX EFFECTS OF AGRICULTURE DECISIONS (MARKOV CHAINS, SIMULATIONS, DECISION THEORY)
Abstract
The objective of this research study is to investigate how the tax rules and regulations applicable to agriculture affect the optimality for agriculture decision making. The study examines such issues as how the cash method of accounting affects the optimal timing for economic transactions, how the opportunity to convert ordinary tax deductions into long-term capital gains affect the optimal strategy for choosing raised pigs for breeding purposes and how the alternative minimum income tax rules restrict the benefits of designated tax rules and regulations. This examination also provides insights as to what types of accounting information is needed to support the agriculture decision making process. The research study uses the principles of Multiperiod Linear Programming to construct a series of decision models for this investigation. These decision models allow revenue to be earned from either a corn or hog production operation. The statistical data used for this study are provided by a thesis conducted by Neal Stanley and statistics maintained by the Agriculture Extension Services at the University of Nebraska. The various decision models are used to examine how (1) the initial state, (2) the use of expected values, (3) inflation, (4) the assumptions for computing borrowing capacity, and (5) the choice of objective functions affect the optimality for agricultural decision making. The solutions for the various decision models demonstrate that the tax law introduces biases which can modify the optimality for agriculture decision making, that deferred taxes are a source of capital for conducting agriculture operations, and that the alternative minimum income tax rules restrict the benefits provided by specific tax rules. The manner in which these various tax rules affect the optimality of decision making depends upon the non-tax parameter for the decision making process. The interaction between the tax and non-tax parameters introduces interperiod dependency for the decision making process. Moreover, the tax law also introduces interdependency between decisions which would not exist except for the tax law. These findings suggest that the tax law creates a need to use mathematical tools which allow the consideration of various decisions at various points of time simultaneously. Thus, the development of multi-period linear programming may improve the relevance and reliability of accounting information.
Subject Area
Accounting
Recommended Citation
JOY, DAVID WALTER, "A MULTIPERIOD LINEAR PROGRAMMING ANALYSIS OF INCOME TAX EFFECTS OF AGRICULTURE DECISIONS (MARKOV CHAINS, SIMULATIONS, DECISION THEORY)" (1984). ETD collection for University of Nebraska-Lincoln. AAI8427907.
https://digitalcommons.unl.edu/dissertations/AAI8427907