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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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Suggested Citation

  • Gilbert E. Metcalf, 2010. "Investment in Energy Infrastructure and the Tax Code," NBER Chapters,in: Tax Policy and the Economy, Volume 24, pages 1-33 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:11968
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    References listed on IDEAS

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    1. 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.
    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 372-393, July.
    3. Kahn, Edward & Goldman, Charles A., 1987. "Impact of tax reform on renewable energy and cogeneration projects," Energy Economics, Elsevier, pages 215-226.
    4. Gilbert E. Metcalf, 2006. "Federal Tax Policy Towards Energy," Discussion Papers Series, Department of Economics, Tufts University 0612, Department of Economics, Tufts University.
    5. Carlson, Curtis & Metcalf, Gilbert E., 2008. "Energy Tax Incentives and the Alternative Minimum Tax," National Tax Journal, National Tax Association, pages 477-491.
    6. Carlson, Curtis & Metcalf, Gilbert E., 2008. "Energy Tax Incentives and the Alternative Minimum Tax," National Tax Journal, National Tax Association, pages 477-491.
    7. Mulder, Arjen, 2008. "Do economic instruments matter? Wind turbine investments in the EU(15)," Energy Economics, Elsevier, pages 2980-2991.
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    Cited by:

    1. Haggerty, Julia H. & Haggerty, Mark & Rasker, Ray, 2014. "Uneven Local Benefits of Renewable Energy in the U.S. West: Property Tax Policy Effects," Western Economics Forum, Western Agricultural Economics Association, vol. 13(01).
    2. repec:spr:chfecr:v:4:y:2016:i:1:d:10.1186_s40589-016-0040-0 is not listed on IDEAS
    3. Weber, Jeremy G. & Wang, Yongsheng & Chomas, Maxwell, 2016. "A quantitative description of state-level taxation of oil and gas production in the continental U.S," Energy Policy, Elsevier, pages 289-301.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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