James F. Mahon
Institutional Affiliation: Harvard University
Information about this author at RePEc
NBER Working Papers and Publications
|January 2016||Tax Policy and Heterogeneous Investment Behavior|
with : w21876
We estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation. Analyzing data for over 120,000 firms, we present three findings. First, bonus depreciation raised investment in eligible capital relative to ineligible capital by 10.4% between 2001 and 2004 and 16.9% between 2008 and 2010. Second, small firms respond 95% more than big firms. Third, firms respond strongly when the policy generates immediate cash flows but not when cash flows only come in the future. This heterogeneity materially affects aggregate estimates and supports models in which financial frictions or fixed costs amplify investment responses.
Published: Eric Zwick & James Mahon, 2017. "Tax Policy and Heterogeneous Investment Behavior," American Economic Review, American Economic Association, vol. 107(1), pages 217-248, January. citation courtesy of