Tax Credit Program Research Articles

Six-years-long effects of the Italian policies for photovoltaics on the pay-back period of grid-connected PV systems installed in urban contexts

In this study the discounted pay-back (DPB) period of rooftop photovoltaic (PV) systems installed in urban contexts was investigated during the course of time with the aim of evaluating the effects of the different supporting policies enacted by the Italian government. The profitability of the investment in three Italian cities was observed from June 2010 to May 2016 by means of an exhaustive economic analysis based on the study of the variation of the costs and benefits during the lifetime of the investment. The analysis considered the disbursements for the PV system devices, maintenance and management, insurance, and wear of PV panels and inverters. Other significant parameters, such as the degradation rate in the efficiency of the PV panels, the discount rate, the inflation rates and the revenues from the sale of the energy exported to the grid and the reduced electricity bills were also taken into account. Compared to the feed-in tariff (FIT) and premiums mechanism in force in Italy until July 2013, the current tax credit program has determined shorter values of DPB periods, which, depending on the site latitude, range from 7.44 to 12.78 years at the end of 2015.

How Location Efficient Is LIHTC? Measuring and Explaining State-Level Achievement

A growing recognition that the cost of transportation should be included in calculations of housing affordability has led to efforts to promote location efficiency (LE) in affordable housing policy. Because the program is responsible for most new affordable housing in the United States, the Low Income Housing Tax Credit (LIHTC) program has the potential to be a link between housing affordability and LE. This research analyzes the extent to which LIHTC units built between 2007 and 2011 were in location-efficient places. Ordinary least squares regression analysis was used to test the role of market, policy, developer, and urban form factors in determining state-level LIHTC LE. We find that for the nation as a whole, from a quarter to half of LIHTC units added during this period were in location-efficient places, depending on the LE criteria applied. State-by-state comparisons showed wide variation in both our absolute measures of LIHTC LE and our relative measures of LIHTC LE compared with overall housing in each state. State policy and nonprofit developers were associated with higher LIHTC LE and had a positive effect on a state’s ability to outperform its underlying urban form.

Overview and Proposed Reforms of the Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit (LIHTC) program provides a subsidy to developers who construct or rehabilitate rent-restricted housing units for 30 years. The program cost the US Government over $8.4 billion in lost tax revenue in 2017 and there is bipartisan support to expand future allocations by up to 50%. We provide an overview of the program and merits of the proposed increase in allocations. The analysis concludes by offering two alternative policy proposals that would increase the annual number of units subsidized under the program without increasing the aggregate dollar amount of allocations.

Leveraging Wage Subsidies to Facilitate Fair Wages and Increase Social Welfare

Wage subsidies can be provided directly to the worker, as in the federal Earned Income Tax Credit (EITC) program. They can also be provided indirectly by subsidizing the employer; by reducing the cost of labor, employers are induced to offer higher wages. The standard literature stipulates that the identity of the entity that is statutorily entitled for the subsidy bears no implications for the economic incidence. We propose and test a mechanism by which indirect subsidies can lead to higher social welfare. A substantial empirical literature establishes that workers reciprocate gifts in the form of higher wages with the gift of exerting higher effort. Thus, if a wage subsidy is implemented by indirectly subsidizing employers, employers face a lower cost of labor and increase their wages, leading workers to reciprocate with higher effort and productivity than achieved by providing the equivalent direct subsidy. A controlled laboratory experiment supports our behavioral hypotheses and confirms the behavioral and welfare implications

Free Riding on Energy Efficiency Subsidies: The Case of Natural Gas Furnaces in Canada

We assess the extent to which subsidies for home energy efficiency improvements in Canada have been paid to households that would have undertaken the improvements anyway—the so-called free rider rate. We focus on forced-air natural gas furnaces, replaced between April 1, 2007 and March 31, 2011, under both federal and provincial subsidy programs as well as the 2009 federal Home Renovation Tax Credit. Our results indicate that around 50 percent of expenditures under the Canadian subsidy and tax credit programs represented free riding. In the long run, our estimates suggest that over 80 percent of grant recipients would have chosen an identical furnace at the time of replacement. We estimate that the cost effectiveness of the programs in terms of greenhouse gas reduced was between $70 and $110/t CO2, depending on the assumptions made. Further, we find that a substantial majority of the grants were received by middle- and high-income households, such that the grant had a regressive effect on the distribution of income. We conclude that such grants are not an optimal way to improve residential energy efficiency.

The Labor Market Effects of State and Local Expansions of the Earned Income Tax Credit

This study analyzes the labor market impact of state and local supplements to the federal Earned Income Tax Credit (EITC) program. Using Current Population Survey data from 1984 to 2006, the study concludes the differential impact of the state and local government supplements of the EITC on the labor force participation rates of married women. In particular, states and local counties with an EITC supplement witness higher labor force participation rates amongst married women. However, no such differential impact is observed for the demographic group of unmarried females.

Cost Effectiveness of the Earned Income Tax Credit as a Health Policy Investment

Lower-income Americans are suffering from declines in income, health, and longevity over time. Income and employment policies have been proposed as a potential non-medical solution to this problem. An interrupted time series analysis of state-level incremental supplements to the Earned Income Tax Credit (EITC) program was performed using data from 1993 to 2010 Behavioral Risk Factor Surveillance System surveys and state-level life expectancy. The cost effectiveness of state EITC supplements was estimated using a microsimulation model, which was run in 2015. Supplemental EITC programs increased health-related quality of life and longevity among the poor. The program costs about $7,786/quality-adjusted life-year gained (95% CI=$4,100, $13,400) for the average recipient. This ratio increases with larger family sizes, costing roughly $14,261 (95% CI=$8,735, $19,716) for a family of three. State supplements to EITC appear to be highly cost effective, but randomized trials are needed to confirm these findings.

Unpacking the impacts of the Low-Income Housing Tax Credit program on nearby property values

Most existing research on the impacts of the Low-Income Housing Tax Credit (LIHTC) on neighbouring property values is limited in terms of providing causal attribution and uncovering nuances in the role of housing market and neighbourhood composition. This article addresses these shortcomings by investigating the impacts of the LIHTC program in Charlotte, North Carolina and Cleveland, Ohio. Levels and trends in housing prices before and after LIHTC developments in neighbourhoods are examined based on parcel-level housing sales data from 1996 to 2007. The Adjusted Interrupted Time Series-Difference in Differences (AITS-DID) model is used to clarify the causal direction of impacts of LIHTC developments. The results show that LIHTC developments have negative impacts in Charlotte, while having upgrading effects in Cleveland. Also, these impacts vary across neighbourhoods’ income heterogeneity. Thus, care should be taken when siting LIHTC developments to minimise negative impacts and enhance its use for community revitalisation across different housing market conditions.

A Descriptive Survey of Why Parents Choose Hybrid Homeschools

ABSTRACT“Hybrid home schools” are schools in which students attend school with other students for 2 or 3 days per week in traditional classroom settings, and are homeschooled the balance of the week. This exploratory study presents self-reported reasons parents choose these schools, using an electronic survey of parents from four such schools (n = 136; 19% return rate). Findings indicate that families in these schools are relatively wealthier and more suburban than parents using tax credit programs, that they value school structures more than particular student achievement outcomes, and that they seek information on accreditation, curriculum, and the religious nature of schools in making their choices.

Non-Religion-Based State Constitutional Challenges to Educational Voucher and Tax Credit Programs

This article provides an overview of non-religion-based state constitutional challenges to educational voucher and tax credit/scholarship programs. The first section discusses litigation examining whether education voucher programs violate constitutional provisions requiring the legislature to provide an efficient system of public schools. The second section looks at litigation examining whether educational voucher programs violate constitutional provisions requiring states to provide a uniform system of public schools. The third section summarizes case law in which plaintiffs have claimed that educational voucher programs violate constitutional requirements that state spending serve a public purpose. The fourth section discusses litigation in which courts have addressed whether educational voucher programs violate local control mandates. The fifth section evaluates challenges to education voucher and scholarship tax credits on the grounds that such policies contravene constitutional mandates that prohibit public spending to private schools. The final section identifies key themes that these non-religion-based state constitutional challenges raise for educational vouchers and tax credit programs as well as emerging issues of litigation.

DO CAPITAL TAX INCENTIVES ATTRACT NEW BUSINESSES? EVIDENCE ACROSS INDUSTRIES FROM THE NEW MARKETS TAX CREDIT

ABSTRACTIn this paper, we examine how government policy affects the sorting of industries across jurisdictions using the New Markets Tax Credit (NMTC) program. When estimating the impact of the tax credit on business activity, there are likely to be unobservable local characteristics that are correlated with business location decisions that would cause OLS estimates to be biased. To control for this endogenous selection, we use a plausibly exogenous eligibility cutoff and compare census tracts that are just eligible for the NMTC program to those that are just ineligible. Using data from the Dun and Bradstreet MarketPlace Files, we find that eligibility for the NMTC program caused industries to sort across eligible and noneligible tracts. In particular, we find that there is an increase in retail employment, both among new businesses and existing businesses, and an increase in manufacturing employment at existing businesses in tracts that were eligible for the program. However, we find negative effects on employment at new firms in the wholesale and transportation industries, and decreases in the number of new firms in FIRE and services. Policy makers should be cognizant of these results, as the implications of the sorting across industries on local areas must be considered to design effective policy.

BEYOND THE EITC: THE EFFECT OF REDUCING THE EARNED INCOME TAX CREDIT ON LABOR FORCE PARTICIPATION

We examine variation in the Earned Income Tax Credit (EITC) program when households lose eligibility due to children aging out of the program. This change in eligibility offers a framework for assessing whether the aim of the program of increasing work incentives extends beyond the time recipients qualify for the EITC. We estimate the impact of reducing the EITC on mothers'labor force participation using a combination of difference-in-differences and household fixed effects models, using data from the National Longitudinal Survey of Youth 1979. The results indicate that some of those who most likely qualify for the EITC (unmarried, less educated mothers) leave the workforce when they lose the benefit.

Book Reviews

Joshua D. Gottlieb of University of British Columbia and NBER reviews “Housing Markets and the Economy: Risk, Regulation, and Policy: Essays in Honor of Karl E. Case”, edited by Edward L. Glaeser and John M. Quigley. The Econlit abstract of this book begins: “Ten papers, plus commentary, collected in honor of Karl Case, examine topics in housing markets and the economy. Papers discuss Case, housing, and the economy; derivatives markets for home prices; home equity insurance—a pilot project; spatial variation in the risk of home owning; arbitrage in housing markets; subprime mortgages—what, where, and to whom?; government-sponsored enterprises, the Community Reinvestment Act, and home ownership in targeted undeserved neighborhoods; siting, spillovers, and segregation—a reexamination of the low-income housing tax credit program; measuring land use regulations and their effects in the housing market; whether real estate agents compete on price— evidence from seven metropolitan areas; and the role of job creation and job destruction dynamics. Glaeser is Fred and Eleanor Glimp Professor of Economics at Harvard University. Quigley is I. Donald Terner Distinguished Professor at the University of California at Berkeley.”

Spatial location of place-based subsidized households and uneven geography of opportunities: case of Austin, Texas in the US

As an alternative to traditional public housing programs, the Low-Income Housing Tax Credit (LIHTC) program has been the dominant federal affordable housing program in the US. However, we have empirically limited understanding as to whether the LIHTC program promotes locational options that offer better socioeconomic opportunities for low-income families. This paper examines the relationships between the spatial location of public housing and LIHTC households and sociodemographic characteristics of neighborhoods in Austin, Texas. We find that both public housing and LIHTC households are located in disadvantaged neighborhoods, especially in terms of higher minority populations, poverty, unemployment, female-headed family, welfare receipt, teenage school dropouts, and lower income. Furthermore, our study shows that the location of public housing and LIHTC households is associated with concentrated crime. However, after accounting for the geographic and sociodemographic characteristics of neighborhoods, only neighborhoods where LIHTC households are located are significantly related to concentrated crime incidents.

Free-Riding on Energy Efficiency Subsidies: The Case of Natural Gas Furnaces in Canada

We assess the extent to which subsidies for home energy efficiency improvements in Canada have been paid to households that would have undertaken the improvements anyway – the so-called free rider rate. We focus on forced-air natural gas furnaces, replaced between April 1, 2007 and March 31, 2011, under both federal and provincial subsidy programs as well as the 2009 federal Home Renovation Tax Credit. Our results indicate that around 50 percent of expenditures under the Canadian subsidy and tax credit programs represented free riding. In the long run, our estimates suggest that over 80 percent of grant recipients would have chosen an identical furnace at the time of replacement. We estimate that the cost effectiveness of the programs in terms of greenhouse gas reduced was between $70 and $110/t CO2, depending on the assumptions made. Further, we find that a substantial majority of the grants were received by middle- and high-income households, such that the grant had a regressive effect on the distribution of income. We conclude that such grants are not an optimal way to improve residential energy efficiency.

Beyond anecdotal evidence: Do subsidized housing developments increase neighborhood crime?

While planners and policymakers have advocated the need for project-based subsidized housing, they often face the challenge of strong community opposition due to the negative perceptions of subsidized housing and subsidized households, and the fear that these developments and residents would bring increased crime. This paper aims to extend beyond anecdotal evidence by examining the impact of a popular U.S. affordable housing program, the Low-Income Housing Tax Credit (LIHTC) program, on neighborhood crime rates. We estimate the levels and trends in neighborhood crime before and after LIHTC developments, based on crime incidents data from 2000 to 2009 in Austin, Texas, using the Adjusted Interrupted Time Series–Difference in Differences (AITS–DID) approach to clarify the causal direction of impacts of LIHTC developments. Results show that LIHTC subsidized housing tended to be developed in neighborhoods where crime was already prevalent, and contrary to popular perception, LIHTC developments have a mitigating impact on neighborhood crime. These results suggest that LIHTC developments may be an effective tool for revitalizing distressed neighborhoods by ameliorating the “broken windows” problem and reducing neighborhood crime.

Estimating Natural Environmental Characteristics of Subsidized Households: A Case Study of Austin, Texas

Compared to the traditional public housing program, the Low-Income Housing Tax Credit (LIHTC) program has been regarded as a better tool to ensure the quality of housing structure for subsidized households and the mixing of incomes in neighborhoods. Previous studies related to LIHTC developments have solely focused on the relationships between subsidized households and socioeconomic environments, such as income, race, poverty, etc. Beyond the socioeconomic environments where subsidized households are located, there is a limited understanding about whether subsidized households experience healthier natural environments in their neighborhoods. This study aims to investigate whether LIHTC-subsidized housing neighborhoods provide adequate natural environments to the subsidized households in Austin, Texas, compared to the public housing households. We employ comparison t-tests and binomial logistic regression models. The results show that LIHTC households are significantly exposed to unhealthy natural environmental settings such as a lack of green vegetation and steep slopes while no statistical evidence is reported for public housing neighborhoods. Findings from this study may help policymakers and planners improve their understanding of whether subsidized housing developments offer better natural environments for disadvantaged populations and help them develop effective environmental intervention strategies to improve the quality of life of subsidized households.

How effective are energy-efficiency incentive programs? Evidence from Italian homeowners

We evaluate incentives for residential energy upgrades in Italy using data from an original survey of Italian homeowners. In this paper, attention is restricted to heating system replacements, and to the effect of monetary and non-monetary incentives on the propensity to replace the heating equipment with a more efficient one. To get around adverse selection and free riding issues, we ask stated preference questions to those who weren't planning energy efficiency upgrades any time soon. We argue that these persons are not affected by these behaviors. We use their responses to fit an energy-efficiency renovations curve that predicts the share of the population that will undertake these improvements for any given incentive level. This curve is used to estimate the CO2 emissions saved and their cost-effectiveness. Respondents are more likely to agree to a replacement when the savings on the energy bills are larger and experienced over a longer horizon, and when rebates are offered to them. Reminding the respondents about possible CO2 emissions reductions (our non-monetary incentive) had little effect. Even under optimistic assumptions, monetary incentives similar to those in the Italian tax credit program are generally not cost-effective.

Dynamics of Firm Participation in R&D Tax Credit and Subsidy Programs

We provide comparative evidence on R&D tax credit and subsidy programs by studying whether firms' participation in each program exhibits state dependence and whether cross program interactions exist and are significant. We use a panel of manufacturing Spanish firms, which could use both types of support, to estimate a random effects bivariate dynamic probit model of program participation. We find that true state dependence of participation in R&D subsidy and tax credit programs accounts respectively for about 55% and 60% of observed persistence. In contrast, we do not find evidence of cross program interaction, suggesting that each tool is used by firms with different profiles. Digging on the role of some observable variables, we find that both programs reach on average stable R&D performers, and that they do not foster participation of young firms relative to older ones. We also identify significant differences across programs: while diversified and commercially successful firms are more likely to use tax incentives, those with high productivity are more likely to obtain subsidies. We discuss some policy implications of these findings.

Low-Income Housing Development, Poverty Concentration, and Neighborhood Inequality

Considerable debate exists about the merits of place-based programs that steer new development, and particularly affordable housing development, into low-income neighborhoods. Exploiting quasi-experimental variation in incentives to construct and rehabilitate rental housing across neighborhoods generated by Low-Income Housing Tax Credit (LIHTC) program rules, we explore the impacts of subsidized development on local housing construction, poverty concentration, and neighborhood inequality. While a large fraction of rental housing development spurred by the program is offset by a reduction in the number of new unsubsidized units, housing investment under the LIHTC has measurable effects on the distribution of income within and across communities. However, there is little evidence the program contributes meaningfully to poverty concentration or residential segregation.