Efficacy of Non-Refundable Tax Credits: Evidence from the Iowa Wind Energy Market
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Abstract
Contributing to the literature surrounding the efficacy of tax credits, this research focuses on the emerging industry of wind energy in Iowa. This research attempts to estimate the causal effect of a non-refundable tax credit policy for wind energy production in the state of Iowa. Utilizing data from the EIA’s Form 860, this research finds using both difference-in-differences and synthetic control estimation that the tax credit for wind energy production was effective. Estimates for the causal effect differ, with the difference-in-differences identifying an estimated effect of 1308 additional wind turbines constructed from 2005-12, while the synthetic control estimation identified an effect of 224 by 2012. These policies costed the state government $13.3 million, suggesting, given the cost of wind turbine development, that large, non-refundable tax credits may support emerging industries well.