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Public Finance Review
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What's this?

Do Tax Incentives Affect Investment?

An Analysis of the New Markets Tax Credit

Tami Gurley-Calvez

West Virginia University, tami.calvez{at}mail.wvu.edu

Thomas J. Gilbert

Government Accountability Office

Katherine Harper

University of Tennessee

Donald J. Marples

Congressional Research Service

Kevin Daly

Government Accountability Office

The authors construct panels of individual and corporate income tax data from 1997 to 2004 to investigate whether the new markets tax credit (NMTC) program leads to increased investment. The authors' approach is unique in the examination of development incentives as their focus is on investor behavior instead of community-level outcomes. They use both instrumental variables and propensity score approaches to address nonrandom selection into the program. The authors' results suggest at least a portion of NMTC investment by individual investors is ``new'' investment financed through a decrease in consumption. This ``new'' investment represents an increase in investment funds available to low-income communities. On the corporate side, the authors find no change in corporate investment levels in response to the NMTC. Using survey data from the Government Accountability Office, the authors infer that corporations have most likely shifted investment funds from higher income communities to NMTC-eligible communities.

Key Words: taxes • panel data • New Markets Tax Credit • investment • community development

This version was published on July 1, 2009

Public Finance Review, Vol. 37, No. 4, 371-398 (2009)
DOI: 10.1177/1091142109332846
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