How Does the Type of Subsidization Affect Investments: Experimental Evidence

arqus Quantitative Tax Research Discussion Paper No. 185

49 Pages Posted: 13 Apr 2015

See all articles by Hagen Ackermann

Hagen Ackermann

Otto-von-Guericke-Universität Magdeburg

Date Written: April 7, 2015

Abstract

I study how different types of subsidization affect investment decisions in a laboratory experiment. Even though the expected profit is identical in all treatments, I find highly significant differences between them. In particular, when investment alternatives get subsidized with tax credits the willingness to invest in the subsidized alternative increases remarkably. In addition, the willingness to take risks increases in general, when tax credits are introduced. Hence, tax credits might be more effective in promoting investments.

Keywords: behavioral economics, subsidies, tax incentives, distorting subsidization, real investment, risk-taking behavior

JEL Classification: C91, D14, H25

Suggested Citation

Ackermann, Hagen, How Does the Type of Subsidization Affect Investments: Experimental Evidence (April 7, 2015). arqus Quantitative Tax Research Discussion Paper No. 185, Available at SSRN: https://ssrn.com/abstract=2593694 or http://dx.doi.org/10.2139/ssrn.2593694

Hagen Ackermann (Contact Author)

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

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