TAXPAYER EXPECTATIONS, TAX INVESTMENT INCENTIVES AND TAXPAYER ECONOMIC BEHAVIOR: AN ANALYSIS OF INVESTMENT BEHAVIOR IN MANUFACTURING FIRMS FROM 1954 TO 1985

This study examines the effect that taxpayer expectations have on the relationship between tax investment incentives and taxpayer economic behavior. Specifically, this study tests the following hypotheses: Taxpayer uncertainty regarding the continued presence of existing tax investment incentives reduces the impact that tax investment incentives have in stimulating additional net investment expenditures. Preannounced changes in the tax investment incentive provisions result in the short-run deferral (acceleration) of previously planned capital good acquisitions when favorable tax investment incentives are about to be enacted (repealed).; The first hypothesis is addressed through an examination of the relationship between the investment tax credit and taxpayer investment behavior over time. The second hypothesis is addressed through the use of an analysis-of-variance model with individual annual intercept terms. The study develops and utilizes eight alternative models of investment behavior, each based on existing research, to test the research hypotheses. Results from the study indicate that taxpayer uncertainty regarding the continued presence of existing tax investment incentives has no impact on the relationship between tax investment incentives and taxpayer investment behavior, and that taxpayers adjust the short-run timing of previously planned investment expenditures based on preannounced changes in the tax investment incentive provisions.