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Investment in Energy Infrastructure and the Tax Code

In: Tax Policy and the Economy, Volume 24

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  • Gilbert E. Metcalf

Abstract

Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. Based on the coefficient estimates the elasticity of investment with respect to the user cost of capital is in the range of -1 to -2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past eighteen years.

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This chapter was published in:

  • Jeffrey R. Brown, 2010. "Tax Policy and the Economy, Volume 24," NBER Books, National Bureau of Economic Research, Inc, number brow09-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11968.

    Handle: RePEc:nbr:nberch:11968

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    1. Gilbert E. Metcalf, 2006. "Federal Tax Policy Towards Energy," NBER Working Papers 12568, National Bureau of Economic Research, Inc.
    2. Curtis Carlson & Gilbert E. Metcalf, 2008. "Energy Tax Incentives and the Alternative Minimum Tax," NBER Working Papers 14110, National Bureau of Economic Research, Inc.
    3. Kahn, Edward & Goldman, Charles A., 1987. "Impact of tax reform on renewable energy and cogeneration projects," Energy Economics, Elsevier, vol. 9(4), pages 215-226, October.
    4. Kevin Hassett & Gilbert E. Metcalf, 1994. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," NBER Working Papers 4780, National Bureau of Economic Research, Inc.
    5. Mulder, Arjen, 2008. "Do economic instruments matter? Wind turbine investments in the EU(15)," Energy Economics, Elsevier, vol. 30(6), pages 2980-2991, November.
    6. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226436319, January.
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