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Energy Tax Credits And Residential Conservation Investment: Evidence From Panel Data (With Kevin Hassett), Gilbert E. Metcalf
Energy Tax Credits And Residential Conservation Investment: Evidence From Panel Data (With Kevin Hassett), Gilbert E. Metcalf
Gilbert E. Metcalf
Using panel data on individual tax returns and variation in state tax policy, we measure the impact of government tax policies to encourage residential conservation investment on the probability of making these investments. Unlike previous work, we account for unobserved heterogeneity in tastes for energy-saving activities and its possible correlation with tax policy at the state level. We find that controlling for unobserved heterogeneity is very important. Based on our preferred point estimate of the tax price coefficient, a 10 percentage point change in the tax price for energy investment would lead to a 24 percent increase in the probability …
The 'New' View Of Investment Decisions And Public Policy Analysis: An Application To Green Lights And Cold Refrigerators, Gilbert E. Metcalf, Donald Rosenthal
The 'New' View Of Investment Decisions And Public Policy Analysis: An Application To Green Lights And Cold Refrigerators, Gilbert E. Metcalf, Donald Rosenthal
Gilbert E. Metcalf
Recent research in investment theory emphasizes the importance of sunk investment costs, uncertainty in returns, and flexibility in investment timing. Allowing for the presence of these characteristics alters traditional discounted cash flow rules for when to invest. Those rules will recommend investing at lower rate-of-return thresholds than is optimal. This article describes this research and suggests the range of potential situations to which the theory applies. It also discusses the implications for policy analysis and suggests that government programs to encourage investment may, in some cases, be inappropriate. After discussing a wide array of possible applications, we focus on one …
Investment Under Alternative Return Assumptions: Comparing Random Walks And Mean Reversion (With Kevin Hassett), Gilbert E. Metcalf
Investment Under Alternative Return Assumptions: Comparing Random Walks And Mean Reversion (With Kevin Hassett), Gilbert E. Metcalf
Gilbert E. Metcalf
Many recent theoretical papers have come under attack for modeling prices as Geometric Brownian Motion. This process can diverge over time, implying that firms facing this price process can earn infinite profits. We explore the significance of this attack and contrast investment under Geometric Brownian Motion with investment assuming mean reversion. While analytically more complex, mean reversion in many cases is a more plausible assumption, allowing for supply responses to increasing prices. We show that cumulative investment is generally unaffected by the use of a mean reversion process rather than Geometric Brownian Motion and provide an explanation for this result.
Value Added Taxation: A Tax Whose Time Has Come?, Gilbert E. Metcalf
Value Added Taxation: A Tax Whose Time Has Come?, Gilbert E. Metcalf
Gilbert E. Metcalf
Value-added taxes (VATs) are used in a large number of developed countries and have been under consideration at the national level in the United States in recent years. This paper provides an introduction to the tax for those unfamiliar with it. The author begins by describing how VATs work and briefly surveys their use by other countries. The remainder of the paper considers the economic impact as well as design issues that are likely to arise if the United States were to implement a VAT.