General equilibrium analysis of investment tax credits in Nebraska

Since 1987, Nebraska has provided investment tax credits to specific firms meeting requirements in both investment and employment. These tax credits were expected to promote the creation of jobs and business investment. This dissertation, using the CGE model of Nebraska, analyzes the effectiveness of investment tax credits in the State of Nebraska. I conducted seven simulations in order to evaluate the effectiveness of investment tax credits. The simulations were divided into two groups. First, I simulated the effects of an additional $100 million in investment tax credits that were offset by reducing government spending or that were financed by increasing other taxes. Second, I conducted the simulations with alternative tax credit rates: a flat tax credit rate and optimized tax credit rates. A main finding is that there is no significant evidence that additional investment tax credits will significantly stimulate state income. The model predicts that an additional $100 million in tax credits generally increases gross investment by about $40 million and also increases the capital stock by about $600 million. These amounts represent about 1% from initial levels. The simulation with optimized tax credit rates reveals the most effective industrial sectors for investment tax credits: (1) Chemicals, (2) Utility, (3) Wholesale, (4) Bank, (5) Insurance, (6) Real Estate, (7) Other Financial, (8) Other Services and (9) Business Services. When tax credits are concentrated in those sectors, the model predicts that total state income increases by about $50 million