Impact Of The Repeal Of The Investment Tax Credit ON Firms Investment Decisions

Abstract

This study investigates the relationship between the 1986 repeal of the investment tax credit (ITC) and firms capital investment rates using an ANCOVA model that includes firm size and growth rate variables as covariates. Our results demonstrate: (1) there is a significant decline in firms investment rates between the pre-Tax Reform Act (TRA) and post-TRA periods; and (2) holding the amount of ITC available to firms constant during the two time periods, firms investment rates remain relatively constant. We conclude that ITC is an important determinant in firms capital investment rates.