NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Energy Tax Credits and Residential Conservation Investment

Kevin A. Hassett, Gilbert E. Metcalf

NBER Working Paper No. 4020 (Also Reprint No. r1991)
Issued in March 1992
NBER Program(s):   PE

We model the decision to invest in residential energy conservation capital as an irreversible investment in the face of price uncertainty. The irreversible nature of this investment means that there is a value to waiting to invest (an option value) which helps explain the low rate of conservation investment as a result of the residential energy tax credit. Simulations suggest that a tax credit of the type implemented from 1978 through 1985 will not increase conservation investment significantly. We investigate the empirical evidence on the effectiveness of credits using data from a panel data set of roughly 38,000 individual tax returns followed over a three year period from 1979-1981. Unlike previous work, we find that the energy tax credit is statistically significant in explaining the probability of investing. Our estimates suggest that increasing the federal credit by 10 percentage points would increase the percentage of households claiming the credit from 5.7% to 7.1%.

download in pdf format
   (276 K)

email paper

This paper is available as PDF (276 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4020

Published: Journal of Public Economics, vol. 57, pp. 201-217, (July 1995).

Users who downloaded this paper also downloaded these:
Gillingham, Newell, and Palmer w15031 Energy Efficiency Economics and Policy
Metcalf Federal Tax Policy towards Energy
Metcalf w13753 Using Tax Expenditures to Achieve Energy Policy Goals
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us