Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estimating the impact of investment tax credits on aircraft demand

Contents:

Author Info

  • Mackay, Daniel

Abstract

This paper uses exogenous price changes from the shifting tax policies of the 1980’s to identify the parameters of a nested-logit discrete choice model of the aircraft market. The federal Investment Tax Credit (ITC) was a tax credit of 6-10% of a firm's new capital investment that was removed by the Tax Reform Act of 1986 (TRA86). Such tax credits continue to be proposed as tools to spur investment, and they are still utlized in many states and select industries. This research adds to the small body of empirical work on taxes in imperfectly competitive markets. I model the oligopoly market structure of aircraft manufacturers by assuming Bertrand competition. The demand-side parameters are estimated using 2SLS with cost-shifting instruments. The demand-side choices are purchasing new or used aircraft, or refraining from purchasing an aircraft. I then estimate linear mark-up equations using the demand-side parameter estimates and other cost variables. I use the full set of parameter estimates to simulate aircraft transactions before and after the TRA86. This structural approach allows me to isolate the effects of the ITC through counterfactual policy simulations. I find that the ITC encourages firms to upgrade to more expensive capital by purchasing a more expensive aircraft than they would have without the ITC; however, the ITC has very limited impact enticing firms to purchase new aircraft instead of used aircraft. The overall effect on new purchases is small. Thus, most of the incidence of the tax credit was gained by the suppliers of aircraft; moreover the ITC exacerbated the market power of suppliers, leading to further distortions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/32767/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32767.

as in new window
Length:
Date of creation: May 2011
Date of revision:
Handle: RePEc:pra:mprapa:32767

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Business Subsidy: TRA86: Differentiated Products: Aircraft;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Douglas A. Irwin & Nina Pavcnik, 2001. "Airbus versus Boeing Revisited: International Competition in the Aircraft Market," NBER Working Papers 8648, National Bureau of Economic Research, Inc.
  2. Christian Rojas, 2008. "PRICE COMPETITION IN U.S. BREWING -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 1-31, 03.
  3. Barnett, Paul G. & Keeler, Theodore E. & Hu, Teh-wei, 1995. "Oligopoly structure and the incidence of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 57(3), pages 457-470, July.
  4. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
  5. Jorgenson, Dale W. & Yun, Kun-Young, 1990. "Tax Reform and U.S. Economic Growth," Scholarly Articles 3403059, Harvard University Department of Economics.
  6. Karp, Larry S & Perloff, Jeffrey M, 1989. "Estimating Market Structure and Tax Incidence: The Japanese Television Market," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 225-39, March.
  7. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
  8. Fershtman, C. & Gandal, N. & Markovich, S., 1998. "Estimating the Effect of Tax Reform in Differentiated Product Oligopolistic Markets," Discussion Paper, Tilburg University, Center for Economic Research 1998-34, Tilburg University, Center for Economic Research.
  9. Devereux, Michael P. & Lanot, Gauthier, 2003. "Measuring tax incidence: an application to mortgage provision in the UK," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1747-1778, August.
  10. Hamilton, Stephen F., 1999. "Tax incidence under oligopoly: a comparison of policy approaches," Journal of Public Economics, Elsevier, vol. 71(2), pages 233-245, February.
  11. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1995. "Tax Reforms and Investment: A Cross-Country Comparison," NBER Working Papers 5232, National Bureau of Economic Research, Inc.
  12. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Jorgenson, Dale W & Yun, Kun-Young, 1990. "Tax Reform and U.S. Economic Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S151-93, October.
  14. S. P. Anderson & A. de Palma & B. Kreider, 2000. "Tax Incidence in Differentiated Product Oligopoly," THEMA Working Papers 2000-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  15. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  16. Luca Bossi, 2007. "Per Unit Versus As Valorem Taxes Under Dynamic Monopoly," Working Papers, University of Miami, Department of Economics 0703, University of Miami, Department of Economics.
  17. Hausman, Jerry A. & Leonard, Gregory K. & McFadden, Daniel, 1995. "A utility-consistent, combined discrete choice and count data model Assessing recreational use losses due to natural resource damage," Journal of Public Economics, Elsevier, vol. 56(1), pages 1-30, January.
  18. Elie Tamer & Federico Ciliberto, 2004. "Market Structure and Multiple Equilibria in Airline Markets," 2004 Meeting Papers 52, Society for Economic Dynamics.
  19. Todd C. Pulvino, 1998. "Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft Transactions," Journal of Finance, American Finance Association, American Finance Association, vol. 53(3), pages 939-978, 06.
  20. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  21. Pechman, Joseph A, 1987. "Tax Reform: Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 11-28, Summer.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:32767. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.