Date of Submission
Campus Only Senior Thesis
Bachelor of Arts
© 2015 Keerthana S. Nunna
The domestic production activities deduction (DPAD) was created to incentivize U.S. firms to produce within the U.S. and thereby increase domestic investing. I test whether the DPAD is a large enough incentive for firms to invest in the U.S. I used a simulation, and I found that without the DPAD incentive the firms never chose to produce within the U.S. With the DPAD incentive, only firms with relatively low costs of labor will produce domestically. These firms are rare and will not have a large impact on domestic investment and these firms increasing their production in the U.S. will not have a large impact on our employment rates. Therefore, the U.S. government is losing out on tax revenue without a large benefit to the economy. I also analyzed the DPAD at the state level. Currently 25 states allow the DPAD, but since it is a broad domestic deduction, these states might not be gaining the benefit of increased investing in their own state. Through a separate simulation and ANOVA tests on archival data, I found that states do not benefit from the DPAD.
Nunna, Keerthana, "Production Deduction, What’s Your Function?: Analyzing the Effectiveness of the Domestic Production Activities Deduction" (2015). CMC Senior Theses. 1137.
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