Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/51310
Authors: 
Gürtler, Marc
Sieg, Gernot
Year of Publication: 
2008
Series/Report no.: 
Economics Department Working Paper Series 1
Abstract: 
If the government announces the termination of a subsidy paid for an irreversible investment under uncertainty, investors might decide to realize their investment so as to obtain the subsidy. These investors might have postponed an investment if future payment were assured. Depending on the degree of uncertainty and the time preference, the termination of the subsidy might cost the government more in toto than granting the subsidy on a continuing basis. A better strategy would be to reduce the subsidy in parts rather than to terminate the subsidy in its entirety.
Subjects: 
Irreversibility
Investment
Announcement effect
Subsidy
Tax
JEL: 
H3
D11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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