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Over the past decade more than 20 states have begun to offer tax credits to angel investors in an attempt to increase state economic growth. These credits are intended to increase new venture investment, create high‐paying and knowledge‐based jobs, and increase tax revenue collections, but there is some debate over costs and benefits associated with these credits. This paper aims to investigate this issue.

This paper will examine the implementation and perceived effectiveness of tax credit programs in Hawaii, Louisiana, Wisconsin, Minnesota, Oregon, and Vermont. These states were chosen for this research sample based on their differing physical locations within the USA and the uniqueness of the characteristics of each state's chosen tax credit program.

The paper reveals that state investment tax credit programs vary widely in areas of eligibility, level of funding available per investment and per year, and whether or not the credits are refundable. All of these factors can cause significant variability in effectiveness of a state program.

Recommended criteria for achieving an outcome that may result in lawmaker support for tax credit incentives will be outlined based on the success, trial, and error of various state programs. These criteria will allow some commonality in analysis of potential or ongoing incentive programs.

This paper provides an analysis of the various existing state investment tax credit programs and identifies characteristics of such programs that may, if used during program formation, result in greater confidence by lawmakers in the program's overall effectiveness and provide a greater commitment to program success.

This paper investigates whether tax incentives can effectively promote capital investment and research spending simultaneously. Tax history provides the experimental setting to compare the influences of these tax initiatives. Analysis shows that firms respond to the research tax incentives by increasing R&D spending but do not significantly react to the policies promoting greater capital investment. More importantly, the results indicate that the tax incentives are negatively related to other types of investment with reduced R&D spending in the presence of incentives for capital investment and capital expenditures decreasing when research is encouraged by tax policy.

This paper aims to focus on helping managers understand a factor that stimulates investment in R&D, namely, the R&D tax credit.

The paper uses a sample of firms in Taiwan; the study period is 1999‐2004. Four variables are used to categorize firms in life cycle stages, and these are ranked in a number of ways.

It is found that the R&D tax credit has an influence of operating performance and that the association of R&D tax credit with operating performance is moderated by the stage of the firm in its respective life cycle. This association is also moderated by the size of the firm.

Management perspective, managers of small, older firms with sales that are stagnant or declining will benefit most from the R&D tax credit. Managers of such companies should make a greater effort to negotiate tax credits as they will benefit the most.

The paper adds to the literature on life cycle analysis

The purpose of this paper is to examine the many factors that affect the leverage decisions of publicly traded Australian companies, and tests to see whether these factors are reliably important. The relationship between these factors and the leverage decision is examined.

This study uses a multiple linear panel regressions to study the relationship between the factors and leverage.

The authors find a set of eight factors which are reliably important for capital structure decision making. These factors include: profitability, log of assets, median industry leverage, industry growth, market to book ratio, tangibility, capital expenditure, and investment tax credits. The empirical evidence indicates weakening support for the pecking order hypothesis and increasing support for the trade-off theory in Australia.

This paper examines the determinants of capital structure using Australian firms and provides a comprehensive empirical support for the capital structure theories.

This research quantifies the economic impact of regional tax policy incentives included in the Gulf Opportunity Zone Act of 2005.

This research utilized linear mixed-effects modeling and multiple regression procedures with a matched sample panel dataset from 2002 through 2008 containing real-world county-level economic data.

The results indicated that the regional tax incentives provided by the GO Zone Act did not generate significant increases in key economic indicators included in this study. These tax incentives were intended to spur economic recovery, but based on research findings, they do not appear to have had the impact desired by Congress.

Archival empirical data for the affected region make this study possible but also limit the ability to generalize these results to other regions. In addition, empirical research utilizing real-world data can be prone to internal validity issues that exist due to lack of environmental controls and other possible causal factors.

This research adds to the existing literature by using real-world county-level economic indicators to test the impact of tax policy investment incentives at the regional level and minimizes some of the issues addressed by prior empirical research and provides evidence on the effectiveness of tax policy investment incentives at the regional level.

The purpose of this paper is to ascertain whether energy retrofits need to be directed by public policy intervention or can be encouraged through tax relief that harnesses profit incentives. Existing office space potentially has an economic life of 25 to 40 years. It may be operating inefficiently compared to newer buildings for many years. Designing a market-based incentive system that encourages periodic remodeling which lowers energy usage and carbon emissions would have social benefits.

An owner/user case study is developed to test financial feasibility. The empirical study uses publicly available information to examine whether the variables modeled react as anticipated. The regression model incorporates variables of importance to an owner/user. Tax credits and energy deductions, interest rates associated with borrowing and likely electricity and natural gas rate changes are independent variables used to predict the dependent variable new non-residential private construction spending.

Investment tax credits (ITCs) coupled with lending has a positive impact on new non-residential commercial construction spending. The value of these benefits is not sufficient to encourage total building energy retrofits, but would encourage low-cost system upgrades. The interest rates associated with borrowing and the debt-service coverage ratio need to be kept low for existing building energy retrofits to be stimulated.

The case study provides a template that a business can use to determine the financial feasibility of a proposed energy upgrade. It enables the comparison of the marginal cost associated with an update to the present value of the financial benefits likely to be generated. Local real estate tax reductions linked to specific energy upgrades offered by many municipalities can be added to the expected energy savings generated by doing the retrofit.

Tax systems designed to solve environmental pollution problems do not require regulators, inspections or court case decisions and are inherently less intrusive to businesses. Coupling private financial incentives with public policy goals cause energy-saving technologies to be adopted more quickly and with less public outcry.

The paper specifically considers the factors that influence an owner/user of the property. Rental rates and vacancy losses do not influence a property owner/user. Prior studies looked at revenue enhancements and lower-vacancy rates possibly associated with a green compared to a non-green office building. These studies did not focus on the owner/user paradigm. They reported financial benefits accruing to property owners who lease the office building. Many retrofit studies tended to use CoStar Group’s data, which are collected by a for-profit company and sold to users. The data used in this study come from survey data collected by the Federal Government of the United States of America (USA). It is publicly available to all researchers.

No systematic models are being used in empirical research that provide assurance for the choice of proxies that are being used. The purpose of this paper is to examine the validity of the proxies being used in empirical research, and as a case study, it focuses on the area of financial derivatives.

First, the authors review results of proxies from the financial derivatives literature and follow with empirical tests to confirm the findings from the review.

The review shows that proxies provide mixed results. The findings are further supported by the results from empirical tests. It suggests that measures used in the studies related to financial derivatives theory may need to be refined and highlights that no solid bases or tests have been developed for the proxies used to measure the constructs.

As individual proxies are examined across studies, a meta-regression analysis cannot be used, and there is no other available model to capture this type of examination. The approach adopted has some limitations but provides a basis for examining the reasonableness of proxies as measures of constructs.

This is the first study that attempts to examine the strength of proxies in capturing related constructs. The methodology is unique to a review of past studies in financial derivatives. It supports the need for developing more rigorous models/bases for the measures being used, and this is an area that has been ignored in empirical research.

The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment.

The authors construct a synthetic panel of data consisting of cohorts of similar farms based on state and production specialization using the USDA’s Agricultural Resource Management Survey for years 1996-2012. Employing panel data methods, the authors are able to control for time-invariant fixed effects, as well as the effects of past investment on current investment.

The authors estimate statistically significant investment demand elasticities with respect to the Section 179 expensing deduction of between 0.28 and 0.50. A change in bonus depreciation, on average, had little impact on capital investment.

The estimates suggest there is a modest effect of the cost recovery provisions on investment overall, but a stronger effect on farms that have more than $10,000 in gross cash farm income. There are other implications for the agricultural sector: the provisions may encourage technology adoption with its associated benefits, such as reduced cost of production and improved conservation practices. On the other hand, the policy could contribute to the growing concentration in production as large commercial farms expand their operated acreage to take advantage of increasingly efficient physical capital.

To the authors’ knowledge, this is the first research to use a nationally representative dataset to estimate to impact of Section 179 and “bonus depreciation” on farm investment. The findings provide evidence of the provisions’ impact on farm capital purchases.

Purpose – The purpose of this chapter is to provide a comprehensive review of the literature on the importance of taxes as a determinant of FDI attraction.

Approach – The chapter presents the fundamental elements of the conceptual background that explain how and under which circumstances taxation may be a significant factor underlying FDI decisions. Then it proceeds with an extensive review of the qualitative and quantitative literature on the topic. Finally, it draws several relevant conclusions on the main patterns that can be extracted from the evolution of the literature on this field.

Findings – In this chapter we arrive at three major findings concerning the effect of taxes on FDI, and we uncover one interesting puzzle worthy of further research.

First, from the literature review it becomes clear that both FDI and taxes are concepts covering heterogeneous phenomena, and therefore to compare studies, results or to make judgments on the relationship between taxes and FDI, the working definitions of FDI and taxes that are being used needs to be clearly established and understood.

Second, based on the review of the qualitative literature, it becomes clear that while taxes are an important aspect of FDI decisions among managers, they are probably not the main driver of the decision. Moreover, taxes may only play a ‘marginal’ role compared with other determinants of FDI.

Third, looking carefully at the quantitative literature as a whole, there is not a straight answer that permits to unequivocally say that lower taxes increase FDI attraction.

Finally, a puzzle emerges from the tension between what policy makers believe and what the studies show. The review in this chapter puts in evidence that while policy makers believe lowering taxes increases the attractiveness of their territories vis-à-vis FDI, the facts show that taxes appear only to play a marginal role compared with other determinants of FDI. So, why do policy makers put so much faith on tax policies as an FDI attraction tool?

Value – The value of this chapter is threefold. It presents a very complete and up to date review of the literature concerning the impact of taxation on FDI decisions, it analyses the literature's apparently disparate results and groups them into three clear emerging conclusions, and uncovers an interesting public policy puzzle.