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How do tax incentives affect business investment? Evidence from German bonus depreciation

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  • Eichfelder, Sebastian
  • Schneider, Kerstin

Abstract

We analyse how tax incentives in the form of accelerated depreciations ("bonus depreciation") affect business investment. By exploiting exogenous variation in tax regulation of a regional bonus depreciation program in the former East Germany, we identify and quantify the impact from bonus depreciation on building and equipment investments at the extensive and intensive margins in the German manufacturing industry. We observe a stronger response for building investments and from large firms. There is only weak evidence of subsidy shopping but stronger evidence of investment shifting to years with more generous bonus depreciation regulations.

Suggested Citation

  • Eichfelder, Sebastian & Schneider, Kerstin, 2018. "How do tax incentives affect business investment? Evidence from German bonus depreciation," arqus Discussion Papers in Quantitative Tax Research 231, arqus - Arbeitskreis Quantitative Steuerlehre.
  • Handle: RePEc:zbw:arqudp:231
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    Cited by:

    1. Eichfelder, Sebastian & Jacob, Martin & Schneider, Kerstin, 2020. "Do tax incentives reduce investment quality?," arqus Discussion Papers in Quantitative Tax Research 248, arqus - Arbeitskreis Quantitative Steuerlehre.
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    More about this item

    Keywords

    bonus depreciation; tax incentive; business taxation; heterogeneity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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