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Investment Responses to Tax Policy Under Uncertainty

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  • Irem Guceri
  • Maciej Albinowski

Abstract

How does economic uncertainty affect the impact of tax policy? 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. Exploiting sharp discontinuities in eligibility and using rich administrative data, we find that firms exposed to high uncertainty decide to “wait and see” before investing, despite generous incentives. Firms that are sheltered from uncertainty still respond strongly to policy. This implies that periods of stability offer an important policy opportunity to encourage investment.

Suggested Citation

  • Irem Guceri & Maciej Albinowski, 2019. "Investment Responses to Tax Policy Under Uncertainty," CESifo Working Paper Series 7929, CESifo.
    • Handle: RePEc:ces:ceswps:_7929
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    Cited by:

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    3. E. Mark Curtis & Daniel G. Garrett & Eric C. Ohrn & Kevin A. Roberts & Juan Carlos Suárez Serrato, 2021. "Capital Investment and Labor Demand," NBER Working Papers 29485, National Bureau of Economic Research, Inc.
    4. Katarzyna A. Bilicka & Irem Guceri & Evangelos Koumanakos, 2022. "Dividend Taxation and Firm Performance with Heterogeneous Payout Responses," NBER Working Papers 30808, National Bureau of Economic Research, Inc.
    5. Ahsan, Tanveer & Al-GAMRH, Bakr & Mirza, Sultan Sikandar, 2022. "Economic policy uncertainty and sustainable financial growth: Does business strategy matter?," Finance Research Letters, Elsevier, vol. 46(PB).
    6. Hazans, Mihails & Pluta, Anna, 2020. "Tax incentives to encourage corporate investment in Latvia," MPRA Paper 118601, University Library of Munich, Germany.
    7. Kong, Dongmin & Ji, Mianmian, 2024. "Individual investors’ dividend tax reform and investment efficiency," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1102-1119.
    8. Cui, Wei & Hicks, Jeffrey & Xing, Jing, 2022. "Cash on the table? Imperfect take-up of tax incentives and firm investment behavior," Journal of Public Economics, Elsevier, vol. 208(C).
    9. Segundo Camino‐Mogro, 2023. "Tax incentives, private investment and employment: Evidence from an Ecuadorian reform," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(7), pages 2129-2156, October.
    10. Karolis Matikonis & Matthew Gobey, 2024. "Small Business Property Tax Reductions and Firm Productivity," Small Business Economics, Springer, vol. 62(1), pages 307-324, January.
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    More about this item

    Keywords

    investment; uncertainty; tax policy;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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