Energy Tax Credits and Residential Conservation Investment / Kevin A. Hassett, Gilbert E. Metcalf.

Format:

Book

Author/Creator:

Hassett, Kevin A.

Contributor:

National Bureau of Economic Research.

Metcalf, Gilbert E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4020.

NBER working paper series no. w4020

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

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%.

Notes:

Print version record

March 1992.