Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180223
Authors: 
Ackermann, Hagen
Fochmann, Martin
Temme, Rebecca
Year of Publication: 
2018
Series/Report no.: 
arqus Discussion Paper 226
Abstract: 
We provide evidence that subsidy types that are identical in monetary terms differ in their behavioral responses and consequently in their effectiveness. In particular, we observe that investments into a subsidized asset are higher under tax credit than under grant. Both subsidy types are essentially very similar, only the mechanism of the subsidy application is different. In case of a grant, an individual gains an amount of money. In case of a tax credit, no money is received directly, but the tax to be paid is decreased by the amount of the tax credit. Our results indicate that these mechanisms have a substantial impact on the effectiveness of subsidies. Applying our findings, governments can "nudge" the investors to support desired investment decisions by using a certain subsidy type. Particularly, our results suggest that when policymakers are indifferent froma budget perspective between providing a subsidy as a grant or as a tax credit, they should implement a tax credit.
Subjects: 
behavioral taxation
subsidy
risk-taking behavior
prospect theory
JEL: 
C91
D14
H24
Document Type: 
Working Paper
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