Investment Responses to Tax Policy Under Uncertainty

No 7929, CESifo Working Paper Series from CESifo

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.

Keywords: investment; uncertainty; tax policy (search for similar items in EconPapers)
JEL-codes: C21 D25 H25 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eur and nep-pbe
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Investment responses to tax policy under uncertainty (2021)
Working Paper: Investment Responses to Tax Policy under Uncertainty (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7929

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