The short-term effects of regional investment tax credits: early evidence from energy communities

The political economy of industrial policy depends on how investment-oriented policies affect economic outcomes within a political cycle. We provide new evidence on the short-term economic impacts of regional investment policy through the first empirical analysis of the Inflation Reduction Act’s energy community tax credit. We find that the credit had limited effects on unemployment, wages, and labour force participation in its first two years, although effects increase late in the sample and are stronger in communities experiencing the highest levels of investment ex post. Our findings suggest that the tangible short-run economic benefits of investment credits may be limited.