Do Tax Credits Effectively Motivate Purchasing Behavior? Experimental Evidence of Conditional Success

• In Event: Tax, Policy, and Behavior

Abstract

Empirical research fails to find robust evidence that tax incentives influence consumer purchasing behavior at the macroeconomic level. In this study, we avoid natural world data interpretation problems by experimentally investigating the incentivizing power of tax credits relative to traditional retail promotions (e.g., price discounts). Using scenarios involving energy-efficient versus standard products, we find that tax credits can effectively encourage consumer purchasing, but success depends on the relative price of non-incentivized alternatives. Specifically, when the price of energy-efficient products is only slightly higher than standard alternative products, tax credits are relatively ineffective at encouraging consumer purchases. In contrast, tax credits are competitive with standard retail promotions when price differentials are large (i.e., when incentivized energy-efficient products are markedly more expensive than standard alternatives). Consistent with dual process theories of cognition, we find that tax credits can enhance the perceived value of incentivized products, but only when incentivized energy-efficient products are conspicuously more expensive than non-energy-efficient alternative products. From a public policy perspective, our results suggest that the impact of tax incentives can be improved by considering the economic setting of incentivized items.

Authors

• Shane Ryan Stinson, University of Alabama-Tuscaloosa

• Beau Grant Barnes, Washington State University

• Steve Buchheit, University of Alabama

• Michaele Lizabeth Morrow, suffolk university