Investment Tax Credits and the Response of Firms

Adrian Lerche ()
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Adrian Lerche: Institute for Employment Research (IAB), Nuremberg

No 15668, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper estimates the direct effects of investment tax credits on firms' production behavior and the additional indirect effects arising from agglomeration economies. Exploiting a change in tax credit rates by firm size in Germany, I find that manufacturing firms increase capital and employment, with labor demand in information and communication technology-intensive industries shifting towards college-educated workers. Using geolocation data, I show that agglomeration benefits lead to a sizable further firm production expansion with these benefits materializing within distances of 5 kilometers. Worker flows from the service sector and from non-employment, rather than between manufacturing firms, explain the employment effects.

Keywords: investment tax incentives; capital; labor demand; agglomeration (search for similar items in EconPapers)
JEL-codes: D22 H25 H32 J23 R11 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2022-10
New Economics Papers: this item is included in nep-eur, nep-geo, nep-ict, nep-lma, nep-pbe, nep-pub and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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