Investment Responses to Tax Policy Under Uncertainty

41 Pages Posted: 27 Nov 2019

See all articles by Irem Guceri

Irem Guceri

University of Oxford - Said Business School

Maciej Albinowski

Warsaw School of Economics (SGH)

Date Written: 2019

Abstract

How does economic uncertainty affect the impact of tax policy? We exploit a natural experiment in which two very similar investment subsidies were implemented in the same country, two years apart: once during a period of economic stability, and once during a period of very high uncertainty. Exploiting sharp discontinuities in eligibility and using rich administrative data, we find that firms exposed to high uncertainty decide to "wait and see" before investing, despite generous incentives. Firms that are sheltered from uncertainty still respond strongly to policy. This implies that periods of stability offer an important policy opportunity to encourage investment.

Keywords: investment, uncertainty, tax policy

JEL Classification: H250, D250, C210

Suggested Citation

Guceri, Irem and Albinowski, Maciej, Investment Responses to Tax Policy Under Uncertainty (2019). CESifo Working Paper No. 7929, Available at SSRN: https://ssrn.com/abstract=3485478 or http://dx.doi.org/10.2139/ssrn.3485478

Irem Guceri (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Maciej Albinowski

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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