The Impact of Investment Incentives: Evidence from UK Corporation Tax Returns

Giorgia Maffini · Michael Devereux

131 citations0/0 files storedAmerican Economic Journal Economic Policy

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Corporate Taxation and Avoidance Economic and Fiscal Studies Fiscal Policy and Economic Growth

Abstract

Using UK corporation tax returns, we provide evidence on the effects of accelerated depreciation allowances on investment, exploiting exogenous changes in the qualifying thresholds for first-year depreciation allowances (FYAs) in 2004. The investment rate of qualifying companies increased by 2.1–2.5 percentage points relative to those that did not qualify. We exploit variation in the timing of tax payments to show that this effect is primarily due to the change in the cost of capital, rather than a relaxation of financial constraints. Discontinuity at notches in the cost of capital at the qualifying thresholds does not affect our results. (JEL D25, G31, H25, H32)

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References

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