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The effect of tax incentives on U.S. manufacturing: Evidence from state accelerated depreciation policies

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  • Ohrn, Eric

Abstract

Accelerated depreciation policies decrease the cost of new investments by allowing firms to deduct the new investments from their taxable income more quickly. Countries around the world use these policies to stimulate business investment. To date, almost all empirical evidence of the effect of these policies relies on cross-industry variation in their generosity. Using a modified difference-in-differences framework, this paper estimates the effects of state adoption of federal accelerated depreciation policies on the U.S. manufacturing sector. The results based on this alternative source of quasi-experimental variation reinforce findings from the cross-industry literature and suggest that accelerated depreciation policies have large and significant effects on capital investment.

Suggested Citation

  • Ohrn, Eric, 2019. "The effect of tax incentives on U.S. manufacturing: Evidence from state accelerated depreciation policies," Journal of Public Economics, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:pubeco:v:180:y:2019:i:c:s0047272719301458
    DOI: 10.1016/j.jpubeco.2019.104084
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    More about this item

    Keywords

    Tax incentives; Investment behavior; Depreciation policy;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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