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Investment responses to tax policy under uncertainty

Irem Guceri and Maciej Albinowski

Journal of Financial Economics, 2021, vol. 141, issue 3, 1147-1170

Abstract: We exploit a natural experiment in which two very similar investment subsidies were implemented in the same country, two years apart: once during a period of economic stability, and once during a period of very high uncertainty. Using rich administrative data, we find that, under low uncertainty, tax incentives have strong positive effects on average investment. Under high uncertainty, however, the story is different: there is vast heterogeneity in responses, with the firms that are sheltered from elevated uncertainty responding strongly to the policy, and the firms that are exposed to high uncertainty driving a drop in responses. This implies that periods of stability offer an important policy opportunity to encourage investment, and the impact of stimulus in crises depends on the distribution of firms in their exposure to uncertainty.

Keywords: Investment; Uncertainty; Tax policy (search for similar items in EconPapers)
JEL-codes: C21 D25 H25 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Investment Responses to Tax Policy Under Uncertainty (2019) Downloads
Working Paper: Investment Responses to Tax Policy under Uncertainty (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:3:p:1147-1170

DOI: 10.1016/j.jfineco.2021.04.032

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