Investment Tax Incentives and Frequent Tax Reforms

Alan Auerbach and James Hines

No 2492, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Despite the frequency of tax changes and their potential importance to investors, almost all of the analysis of tax-based investment incentives assumes investors never anticipate any tax changes. We depart from this approach by analyzing the historical pattern of U.S. corporate investment incentives over the period 1953-86, incorporating the feature of investor awareness that the tax code may change. Our analysis incorporates a predictive equation for future tax variables into a model of optimal investment subject to adjustment costs and uncertainty. We find that expectations of future tax changes significantly affect the incentive to invest only if adjustment costs are low. In this case, the incentive to invest in 1986 was strong, as investors are estimated to have anticipated the coming reduction in investment incentives.

Date: 1988-01
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Published as The American Economic Review, Vol. 78, No. 2, pp. 211-216, (May 1988).

Downloads: (external link)
http://www.nber.org/papers/w2492.pdf (application/pdf)

Related works:
Journal Article: Investment Tax Incentives and Frequent Tax Reforms (1988)
Working Paper: INVESTMENT TAX INCENTIVES AND FREQUENT TAX REFORMS (1988)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2492

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2492

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().