Energy Tax Credits and Residential Conservation Investment

44 Pages Posted: 31 May 2001 Last revised: 13 Nov 2014

See all articles by Kevin A. Hassett

Kevin A. Hassett

American Enterprise Institute (AEI)

Gilbert E. Metcalf

Tufts University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1992

Abstract

We model the decision to invest in residential energy conservation capital as an irreversible investment in the face of price uncertainty. The irreversible nature of this investment means that there is a value to waiting to invest (an option value) which helps explain the low rate of conservation investment as a result of the residential energy tax credit. Simulations suggest that a tax credit of the type implemented from 1978 through 1985 will not increase conservation investment significantly. We investigate the empirical evidence on the effectiveness of credits using data from a panel data set of roughly 38,000 individual tax returns followed over a three year period from 1979-1981. Unlike previous work, we find that the energy tax credit is statistically significant in explaining the probability of investing. Our estimates suggest that increasing the federal credit by 10 percentage points would increase the percentage of households claiming the credit from 5.7% to 7.1%.

Suggested Citation

Hassett, Kevin A. and Metcalf, Gilbert E., Energy Tax Credits and Residential Conservation Investment (March 1992). NBER Working Paper No. w4020. Available at SSRN: https://ssrn.com/abstract=271823

Kevin A. Hassett (Contact Author)

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202.862.7157 (Phone)
202.862.7177 (Fax)

Gilbert E. Metcalf

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3685 (Phone)
617-627-3917 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
44
Abstract Views
1,214
PlumX Metrics