The significance of the investment tax credit in investment decisions: An empirical and international analysis.

摘要

Over the past few decades econometricians have developed models of investment behavior of firms. A majority of the models used aggregate data to estimate their investment functions. There has been general agreement on what the determinants of investment are but much disagreement on the impetus that each determinant holds. This study attempts to measure the strength that the investment tax credit has had on investment decisions. Specifically, a model was built using firm specific variables to directly and indirectly measure the significance of the investment tax credit in investment decisions. All of the determinants used were accounting financial statement variables. The study follows a micro approach and uses a matched pairs design of U.S. and Canadian firms to measure the impact of the investment tax credit on investment between firms which had the investment tax credit benefit and those which did not. Twenty-six pairs of U.S. and Canadian firms were matched on industry type, size of the firms, and Tobin's q-ratio. Univariate tests were used to measure the significance of the differences of the dependent variable, the investment rate, between the matched pairs during the period 1968-1985. Additionally, trends of investment rates were tested on the matched pair differences and on Canadian, vis-a-vis U.S., investment rates in relation to investment tax credit legislation. The U.S. had the investment tax credit during the entire test period, except for a short time, but Canada enjoyed this investment incentive only since 1975. Zellner's seemingly unrelated regressions technique was used to directly test for the significance of the independent variable, investment tax credit, on investment rates of U.S. firms. The investment tax credit had a significant impact on 7 of the 26 U.S. firms, suggesting that the effectiveness of investment may have been more dependent on firm-specific factors than on aggregate economy-wide factors. Moreover, the results suggest that the stimulus of the investment tax credit on investment may not have been as influential as originally intended by the U.S. Congress.