TY  - JOUR
AU  - Auerbach,Alan J.
AU  - Hines,James R.,Jr.
TI  - Investment Tax Incentives and Frequent Tax Reforms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2492
PY  - 1988
Y2  - 1988
DO  - 10.3386/w2492
UR  - http://www.nber.org/papers/w2492
L1  - http://www.nber.org/papers/w2492.pdf
N1  - Author contact info:
Alan J. Auerbach
Department of Economics
530 Evans Hall, #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0711
Fax: 510/643-0413
E-Mail: auerbach@econ.berkeley.edu

James R. Hines
Department of Economics
University of Michigan
343 Lorch Hall
611 Tappan Street
Ann Arbor, MI  48109-1220
Tel: 734/764-2320
Fax: 734/764-2769
E-Mail: jrhines@umich.edu
AB  - Despite the frequency of tax changes and their potential importance to investors, almost all of the analysis of tax-based investment incentives assumes investors never anticipate any tax changes. We depart from this approach by analyzing the historical pattern of U.S. corporate investment incentives over the period 1953-86, incorporating the feature of investor awareness that the tax code may change. Our analysis incorporates a predictive equation for future tax variables into a model of optimal investment subject to adjustment costs and uncertainty. We find that expectations of future tax changes significantly affect the incentive to invest only if adjustment costs are low. In this case, the incentive to invest in 1986 was strong, as investors are estimated to have anticipated the coming reduction in investment incentives.
ER  -