Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/213010
Authors: 
Eichfelder, Sebastian
Jacob, Martin
Schneider, Kerstin
Year of Publication: 
2020
Series/Report no.: 
arqus Discussion Paper 248
Abstract: 
This paper examines the effect of tax incentives in the form of bonus depreciation on the quality of investment. Using the expiration of tax incentives via bonus depreciation in East Germany and a representative panel of West German establishments, we show that bonus depreciation significantly lowers the quality of investment. The average quality of investments, measured by the responsiveness of future sales to current investment, reduces by 22.6-34.6%. This adverse effect of tax subsidies is greater for jurisdictions with higher tax rates as well as for large or high-productivity firms. Overall, while increasing investment quantity, as shown by prior literature, tax incentives such as bonus depreciation substantially reduce the quality of investments.
Subjects: 
bonus depreciation
tax incentive
investment incentive
investment quality
JEL: 
G11
H25
H32
M41
Document Type: 
Working Paper

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