RDP 2018-07: The GFC Investment Tax Break 8. Conclusion

Using two different statistical methods, we find that the investment tax break that the Australian Government introduced in response to the GFC substantially raised investment. Our results indicate that the tax breaks affected investment, at least in part, through non-standard mechanisms, such as by relaxing financial constraints.

We find no evidence that businesses brought forward investment from the future, indicating that the tax breaks led to an actual increase in the total amount of investment and, therefore, the capital stock. Moreover, based on our estimates of the size of the tax break's effects on aggregate investment and GDP, it should be considered an important part of Australia's macroeconomic history.