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The role of personal income taxes in corporate investment decisions

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  • Jacob, Martin
  • Vossebürger, Robert

Abstract

This paper examines the role of personal income taxes (PIT) in corporate investment decisions. Since PIT reduce consumption and increase cost of labor, investment decisions can be affected because of the inevitable link of production input factors. Using data on PIT in 27 European countries and three within-country approaches, we find that personal income taxes substantially reduce investment. The magnitude is comparable to the effect of corporate taxes. We also document that the PIT-investment relationship can be explained by increased labor costs and by reduced consumption due to higher PIT.

Suggested Citation

  • Jacob, Martin & Vossebürger, Robert, 2022. "The role of personal income taxes in corporate investment decisions," Journal of Corporate Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:corfin:v:77:y:2022:i:c:s0929119922001183
    DOI: 10.1016/j.jcorpfin.2022.102275
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    More about this item

    Keywords

    Personal income taxation; Corporate investment;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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