The effect of tax incentives on US manufacturing: Evidence from state accelerated depreciation policies

Accelerated depreciation policies decrease the cost of new investments by allowing firms to deduct the new investments from their taxable income more quickly. Countries around the world use these policies to stimulate business investment. To date, almost all empirical evidence of the effect of these policies relies on cross-industry variation in their generosity. Using a modified difference-in-differences framework, this paper estimates the effects of state adoption of federal accelerated depreciation policies on the U.S. manufacturing sector. The results based on this alternative source of quasi-experimental variation reinforce findings from the cross-industry literature and suggest that accelerated depreciation policies have large and significant effects on capital investment. (C) 2019 Elsevier B.V. All rights reserved.