Investment in Energy Infrastructure and the Tax Code

Gilbert Metcalf ()

No 743, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. Based on the coefficient estimates the elasticity of investment with respect to the user cost of capital is in the range of -1 to -2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past eighteen years.

Keywords: electricity; wind power; production tax credits; tax subsidies (search for similar items in EconPapers)
JEL-codes: H2 Q4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-pub
Date: 2009
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Working Paper: Investment in Energy Infrastructure and the Tax Code (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:tuf:tuftec:0743

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