American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Impact of Investment Incentives: Evidence from UK Corporation Tax Returns
American Economic Journal: Economic Policy
vol. 11,
no. 3, August 2019
(pp. 361–89)
Abstract
Using UK corporation tax returns, we provide evidence on the effects of accelerated depreciation allowances on investment, exploiting exogenous changes in the qualifying thresholds for first-year depreciation allowances (FYAs) in 2004. The investment rate of qualifying companies increased by 2.1–2.5 percentage points relative to those that did not qualify. We exploit variation in the timing of tax payments to show that this effect is primarily due to the change in the cost of capital, rather than a relaxation of financial constraints. Discontinuity at notches in the cost of capital at the qualifying thresholds does not affect our results.Citation
Maffini, Giorgia, Jing Xing, and Michael P. Devereux. 2019. "The Impact of Investment Incentives: Evidence from UK Corporation Tax Returns." American Economic Journal: Economic Policy 11 (3): 361–89. DOI: 10.1257/pol.20170254Additional Materials
JEL Classification
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm