Consumption Taxes and Corporate Investment (original) (raw)

The Effect of Consumption Taxes on Corporate Investment

2016

Using a large dataset on listed firms from 68 countries and numerous changes in consumption tax rates staggered over time and across countries, this paper examines how consumption taxes affect corporate investment. We show empirically that consumption taxes significantly decrease investments. A one-percentage-point increase in the consumption tax decreases investments by 1.8%. The effect of consumption taxes on corporate investment is more pronounced for firms with low supply elasticities and for firms facing high demand elasticities because both types of firms are less able to pass the consumption tax on to consumers. We also show that investment of firms with more exposure to domestic consumers is more responsive to consumption tax changes. Taken together, our results suggest that consumption taxes represent a substantial burden to firms and adversely affect corporate investments.

Do corporate taxes reduce investments? Evidence from Italian firm-level panel data

Cogent Economics & Finance, 2015

This paper uses an Italian firm-level panel data-set over the period 1994-2006 to investigate the nexus between corporate taxation and investment. Studying the effects of corporate taxation on investment at the micro level has two advantages. Firstly, investment is free of aggregation biases and secondly, the firm-level dimension allows asking whether the effects of corporate taxation differ across firms with different characteristics. In the empirical analysis, we employ a Generalized Method of Moments estimator, which permits us to handle not only the dynamic structure of the model and of the predetermined or endogenous explanatory variables, but also firm-specific factors, heteroskedasticity, and autocorrelation of individual observations. We find that corporate taxes distort investment decisions. The results are robust to the inclusion of many controls.

Why is the Corporation Tax Not Neutral? Anticipated Tax Reform, Investment Spurts and Corporate Borrowing

2000

The paper shows that a corporate tax policy which is thought to be neutral may have significant incentive effects. This result is established in a model with tax advantage to debt and expectations about a forthcoming tax reform. Investment spurt effects are established and compared to those of a firm with equity finance. A tax-cut cum base-broadening tax reform which leaves the long-run investment incentives of an all-equity firm unaffected is shown to cause a substantial short run investment hike. The findings are illustrated by numerical simulations indicating the magnitudes of the spurt effects.

Personal Income Taxes and Corporate Investment

SSRN Electronic Journal, 2010

Existing studies report that the 2003 dividend tax cut had no effect on corporate investment. In this paper we show that dividend taxation, in theory should have, and empirically does have, important effects on corporate investment among publicly traded U.S. firms from 1977 to 2006. Cash-poor firms respond to a dividend tax cut by increasing investment. Cash-rich firms respond to a dividend tax cut by reducing investment and increasing dividends. The opposite reactions from these two types of firms significantly reduce the observed aggregate or average response of firms' investment to dividend tax changes.

The U.S. Corporate Tax Reform and Its Macroeconomic Outcomes

Research in World Economy, 2013

The corporate tax reform has been among the most controversial issues during the past U.S. presidential debates. Though much has been said about the adverse macroeconomic effects of the corporate tax hike, less attention has been paid to the magnitude of such effects. This study attempts to measure the adverse effects of the corporate tax hike on macroeconomic variables such as investment, real GDP, productivity growth, hourly wages, unemployment rate, natural rate of unemployment, and consumer price index (CPI). The estimated regression results with quarterly data from1960 to 2010suggest that a 10% increase in the effective corporate tax rate reduces private investment by3.1%, real GDP by 1.5%, productivity by 2.6%, and hourly wages by 4%. The results also indicate that this increase in the effective corporate tax rate raises short-term unemployment rate by 0.5%, the natural rate of unemployment by 1%, and the consumer price index (CPI) by 0.9%.

Personal Income Tax and Corporate Investment

centerforpbbefr.rutgers.edu

How Corporate Tax Competition Reduces Personal Tax Revenue

CESifo DICE Report

This paper measures the relative importance of quality and quantity effects of corporate taxation on foreign direct investment. Quantity is affected if corporate taxes reduce the equilibrium stock of foreign capital in a given country. Quality effects arise if taxes decrease the extent to which investment contributes to the corporate tax base and the capital intensity of production. Depending on the sign of the quality effects, the detrimental welfare effects of corporate taxation are either mitigated or aggravated. We derive a number of hypotheses how corporate tax changes may affect the quality of investment. Our hypotheses are then tested using data from a large sample of European multinationals. With regard to corporate tax effects on the corporate tax base, we find that quality effects account for up to fourty per cent of the total effect. With regard to corporate tax effects on labour income, our results suggest that quality effects mitigate the negative quantity effect by nea...

INVESTMENT AND NEUTRALITY OF CAPITAL INCOME TAXATION: TESTING THE KING-FULLERTON FRAMEWORK

The King-Fullerton (1984) approach to the measurement of effective marginal rates of taxation on capital income has been applied extensively. The empirical literature confirms that the dispersion of effective tax rates, both within each country and among countries, is wide. However no test has been proposed of the impact on investment of these findings. The paper tests the conjecture proposed by King and Fullerton that standard deviation of effective tax wedges and investment or growth are inversely correlated. We find that international evidence does not support the conjecture: while investment and tax wedges are negatively correlated, as expected, the standard deviation of tax wedges seems to be positively correlated to investment. We propose the following interpretation of this result: a substantial part of the variance of effective marginal rates is explained by an implicit subsidy to equipment investment, and this policy may be justified by De Long-Summers (1992) results or by the view that this type of investment have more impact on growth than other types (such as buildings and inventories). In some cases also a partial deduction of interest rates may be rational when capital markets are rationed. Thus it may be simplistic and misleading to use King- Fullerton statistics as yardsticks for tax reforms leading to uniformity of effective marginal tax rates.

Corporate Taxation, Investment and Productivity: A Firm Level Estimation

SSRN Electronic Journal, 2011

This paper analyses how corporate taxes can affect investment and productivity. To address this question the paper uses data from a set of 42 developing countries taken from the World Bank Business Environment Surveys and examines whether firms with different sizes are affected differently by taxation. We extend the analysis that has been carried out relating tax rates to investment into the analysis of the impact of taxation on total factor productivity. Investment and productivity are shown to respond negatively to an increase in the corporate tax rate. These effects are stronger in bigger firms.

Consumption Taxes and Corporate Investment (original) (raw)

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