Corporate Tax Minimization and the Effectiveness of Investment Tax Incentives

Clarifying the relationship between corporate tax minimization and the incentive to invest is particularly important because of the size of corporate tax minimization or avoidance and the recurrent use of tax incentives as attempts to spur business investment. In this paper, we empirically estimate the effect of an investment tax incentive known as the bonus depreciation that was passed in 2002, and extended in 2003 using firm level data. In our most robust specifications we find a small but not significant effect of bonus depreciation on investment and a small but not significant evidence that tax minimization opportunities have mitigated its effectiveness