TY  - JOUR
AU  - Hassett,Kevin A.
AU  - Metcalf,Gilbert E.
TI  - Energy Tax Credits and Residential Conservation Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4020
PY  - 1995
Y2  - August 1995
UR  - http://www.nber.org/papers/w4020
L1  - http://www.nber.org/papers/w4020.pdf
N1  - Author contact info:
Kevin Hassett
American Enterprise Institute
1150 Seventeenth Street, N.W.
Washington, DC 20036
E-Mail: khassett@aei.org

Gilbert E. Metcalf
Room 3221
Department of the Treasury
Washington, DC 20220
1500 Pennsylvania Ave., NW
Tel: 202-622-0173
E-Mail: gilbert.metcalf@tufts.edu
M2  - featured in NBER digest on 1992-07-01
AB  - 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%.
ER  -