Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/214931 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7929
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
How does economic uncertainty affect the impact of tax policy? We exploit a natural experiment in which two very similar investment subsidies were implemented in the same country, two years apart: once during a period of economic stability, and once during a period of very high uncertainty. Exploiting sharp discontinuities in eligibility and using rich administrative data, we find that firms exposed to high uncertainty decide to "wait and see" before investing, despite generous incentives. Firms that are sheltered from uncertainty still respond strongly to policy. This implies that periods of stability offer an important policy opportunity to encourage investment.
Subjects: 
investment
uncertainty
tax policy
JEL: 
H25
D25
C21
Document Type: 
Working Paper
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