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The Failure of Solar Tax Incentives: A Dynamic Analysis

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  • Thomas G. Sav

Abstract

In recent years we have witnessed governmental attempts to acceler- ate the stock demand for energy-saving durables with financial incentives implemented through the tax mechanism. At the federal level, income tax credits for the purchase of energy-saving durable stocks were introduced through the Energy Tax Act of 1978 (Public Law 95-618). In addition, many states have enacted their own energy-saving tax incentive legislation. A substantial body of this tax legislation has been aimed at accelerating substitution of solar-produced energy for conventional, nonrenewable energy resources in the residential and commercial building sectors. Along these lines, the bulk of engineering (so-called life-cycle) cost studies accompanying much of this legislation predicted that solar tax incentives would generate widespread market penetration with little or no delay.' However, casual observation reveals that tax-induced solar energy substitutions have not been widespread. This paper presents a dynamic model of investment decisions in solar processes-a model that captures the effect of tax legislation aimed at accelerating market penetration of solar energy.

Suggested Citation

  • Thomas G. Sav, 1986. "The Failure of Solar Tax Incentives: A Dynamic Analysis," The Energy Journal, , vol. 7(3), pages 51-66, July.
    • Handle: RePEc:sae:enejou:v:7:y:1986:i:3:p:51-66
    DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-4
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    References listed on IDEAS

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    1. Sav, G Thomas, 1984. "The Engineering Approach to Economic Production Functions Revisited: An Application to Solar Processes," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 21-35, September.
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