Working Paper: NBER ID: w15429
Authors: Gilbert E. Metcalf
Abstract: Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. Based on the coefficient estimates the elasticity of investment with respect to the user cost of capital is in the range of -1 to -2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past eighteen years.
Keywords: energy investment; tax policy; wind energy; production tax credit
JEL Codes: H2; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax policy (H20) | wind investment (Q42) |
| user cost of capital (G31) | wind investment (Q42) |
| federal production tax credit (H25) | wind investment (Q42) |