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Investment in Energy Infrastructure and the Tax Code

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Author Info
Gilbert E. Metcalf

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15429.

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Date of creation: Oct 2009
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Handle: RePEc:nbr:nberwo:15429

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Find related papers by JEL classification:
H2 - Public Economics - - Taxation, Subsidies, and Revenue
Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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References listed on IDEAS
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  1. Curtis Carlson & Gilbert E. Metcalf, 2008. "Energy Tax Incentives and the Alternative Minimum Tax," NBER Working Papers 14110, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Hassett, Kevin A & Metcalf, Gilbert E, 1999. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Economic Journal, Royal Economic Society, vol. 109(457), pages 372-93, July. [Downloadable!] (restricted)
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