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 -