Data and Code for: Direct and Indirect Effects of Investment Tax Incentives

This paper estimates the direct effects and indirect spillover effects of investment tax credits on firms. Exploiting a differential tax credit rate change by firm size in the German manufacturing sector, I find that lowering a firm’s investment cost by 7.6 percent increases its capital stock by 17.7 percent and employment by 12.0 percent. Positive local spillovers generate one additional manu- facturing job for each directly created job, are strongest between firms in industries connected through input-output linkages, and arise within distances of five kilometers. Firms dependent on local consumer demand also increase employment, while within-industry spillovers generate small negative effects.