The Impact of IRA 45X Tax Credit on Investment Levels of Solar Industry Firms: An Empirical Study Based on the DID Model
Year: 2026
Type: article
Abstract: In the end of 2022, the U.S. enacted an Inflation Reduction Act, introducing the Section 45X Advanced Manufacturing Production Credit, the credit was imposed to reduce foreign import dependencies and secure domestic clean energy transition. To study Section 45X’s causal impact on firm’s capital allocation and investment trend, this essay applies a quasi-experimental Difference-in-Differences (DID) framework to a quarterly panel dataset of 20 publicly listed U.S. solar manufacturing firms between the 2016 and 2026 period. Empirical results concluded from the two-way fixed effects model has shown that Section 45X acted as a catalyst, creating a significant supply-side shock. This lift from the policy enlarged quarterly capital investment between eligible solar firms by around 36.8% compared with the controlled firms. Confirmed by parallel trend test, this investment surge truly reveals a direct reaction to a volume-linked subsidy. However, the conclusions also revealed an asymmetrical supply chain unbalance, where downstream module assemblies appear to be more supported than upstream cell production. Therefore, to maintain long-term stability of domestic supply chain before 2029 (phase down stage of the tax credit), policymakers must implement targeted upstream financial support and strategically regulate trade barriers.
DOI: 10.66393/wn1bx711
Author: Gongyi Zhang
Institution: King's College London
Language: English
Topic: Innovation Policy and R&D
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W7224591210