Skip to main content.
EDI
EDI
  • About sub-menuAbout EDI
  • People sub-menuPeople
  • Programs sub-menuPrograms
    • OSUN Summer Workshop
    • Post-Neoliberalism Symposium
    • JobGuarantee.org Research Tool
  • Research sub-menuResearch
    • CFEPS Archive
    • EDI Notes
    • Policy Notes
    • Working Papers
  • Education sub-menuEducation
    • OSUN Certificate
    • OSUN Courses
  • Events sub-menuEvents
  • Data sub-menuData

EDI Resource Database

Tables, GIS files, Data Profiles, and Mapping Applications
Money and Finance

WP 19 Tax Credits Are Industrial Policy: Answering the Derisking Critique on Discipline and Investment

Chirag Lala, University of Massachussets - Amherst | March 2024

ABSTRACT

The Inflation Reduction Act (IRA) is criticized for "derisking" private investment by increasing the gains to private firms. The derisking critique argues that the IRA insufficiently disciplines private firms; it does not utilize legal or financial penalties which would force firms to undertake green investment and bar emissions-intensive investment. This paper answers that critique by providing a Post-Keynesian theory of capital expenditure. It argues all industrial policies promote investment by removing or mitigating risks in an environment of fundamental uncertainty. Industrial policies tackle different risks and can be assessed or compared on their effectiveness in doing so. An insufficient investment growth rate need not be an indication of their failure, but that complementary policies are required to mitigate risks or make risks calculable. For instance, the IRA’s uncapped Investment Tax Credit (ITC) increases clean energy investment by reducing project reliance on expensive debt financing. The ITC does not address other barriers to clean energy investment: transmission and distribution, permitting, or the need for clean firm resources. This is not a failure of discipline, but rather an indication that more state intervention must facilitate rapid decarbonization. The derisking critique’s emphasis on disciplining private firms into investment reallocation underestimates real obstacles to investment, particularly how those obstacles shape choices faced by firms. It also affects the character of investment itself, making it inaccurate to describe investment as the allocation of fixed financial resources. The derisking critique lacks a mechanism connecting financial or legal disciplinary measures on firms to an increase in green capital expenditure. This causes the derisking critique to miss a more productive avenue for investigating industrial policy conditionalities: linking them to a broader state-led coordination of varying industrial policy priorities, the timing of capital expenditure to meet them, and seizing of opportunities presented by their success.

Key Words: Tax Credits, IRA, Inflation Reduction Act, Clean Energy, Industrial Policy, Investment Theory, Capital Theory, Risk, Uncertainty
 
Download File


Cross Reference: Papers,Working Paper,Money and Finance
OSUN Economic Democracy Initiative
Economic Democracy Initiative
[email protected]
@EDI_Tweets
Supported By
Supported By
Hosted by
Hosted by