IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v115y2025i8p2781-2818.html
   My bibliography  Save this article

Direct and Indirect Effects of Investment Tax Incentives

Author

Listed:
  • Adrian Lerche

Abstract

This paper estimates the direct effects and indirect spillover effects of investment tax credits on firms. Exploiting a differential tax credit rate change by firm size in the German manufacturing sector, I find that lowering a firm's investment cost by 7.6 percent increases its capital stock by 17.7 percent and employment by 12.0 percent. Positive local spillovers generate one additional manufacturing job for each directly created job, are strongest between firms in industries connected through input-output linkages, and arise within distances of five kilometers. Firms dependent on local consumer demand also increase employment, while within-industry spillovers generate small negative effects.

Suggested Citation

  • Adrian Lerche, 2025. "Direct and Indirect Effects of Investment Tax Incentives," American Economic Review, American Economic Association, vol. 115(8), pages 2781-2818, August.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:8:p:2781-2818
    DOI: 10.1257/aer.20220656
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aer.20220656
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://doi.org/10.3886/E225721V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/23640
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/23641
    Download Restriction: no
    File URL: https://libkey.io/10.1257/aer.20220656?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:115:y:2025:i:8:p:2781-2818. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.