Using Australian tax and survey data, the paper uses discrete eligibility cut-offs to estimate the effect of several business investment tax breaks (ITBs), including tax credits and instant asset write-offs, implemented over the past 15 years. A key takeaway is that ITBs can be effective tools for stimulating the economy during a downturn.

Key findings

• The ITBs used during the Global Financial Crisis (GFC) increased investment significantly. However, the paper found no substantial evidence that other policies, including those implemented during the pandemic, increased investment.
• Unincorporated businesses appear to be more responsive to ITBs than incorporated companies. This is consistent with Australia’s tax system, where shareholders can lower their tax bill to reflect taxes already paid by the company. This makes ITBs less valuable for companies, particularly domestically owned small companies.
• While not the focus of the research, there is some tentative evidence that corporate tax cuts for small businesses in the mid-2010s led to some additional investment. However, further detailed work is needed to properly assess this policy.
• ITBs can be effective tools for stimulating the economy during a downturn – but this is highly dependent on the nature of that downturn. Outside of this, smaller policies targeted at ‘structurally’ raising the level of investment during normal times seem to have very limited effects and so future policies might require different features to achieve their intended benefits.