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Corporate Taxation and Investment: Evidence from a Context of Frequent Tax Reforms

Author

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  • Ligia Alba Melo-Becerra

    (Banco de la República, Bogotá, Colombia)

  • Javier Ávila Mahecha

    (Dirección de Impuestos y Aduanas Nacionales, Bogotá, Colombia)

  • Jorge Enrique Ramos-Forero

    (Banco de la República, Bogotá, Colombia)

Abstract

The paper assesses the role of taxes on investment in Colombian firms. The research takes advantage of the Colombian context of frequent tax reforms, at least one reform every three years, during the period 2005-2014, and a unique panel data set from financial statements and corporation tax returns at the firm level. The effect of corporate taxation on investment is estimated by first determining the impact of taxation on the user cost of capital by computing the marginal effective tax rates at the firm level. Then, we estimate the impact of the cost of capital on investment. Estimations indicate that the corporate income tax elasticity of investment is on average –0.2 for the analyzed period, which is in the lower range when compared to other studies for developed countries

Suggested Citation

  • Ligia Alba Melo-Becerra & Javier Ávila Mahecha & Jorge Enrique Ramos-Forero, 2021. "Corporate Taxation and Investment: Evidence from a Context of Frequent Tax Reforms," Hacienda Pública Española / Review of Public Economics, IEF, vol. 237(2), pages 3-31, June.
    • Handle: RePEc:hpe:journl:y:2021:v:237:i:2:p:3-31
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    References listed on IDEAS

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    2. Eichfelder, Sebastian & Knaisch, Jonas & Schneider, Kerstin, 2023. "How does bonus depreciation affect real investment? Effect size, asset structure, and tax planning," arqus Discussion Papers in Quantitative Tax Research 278, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    Corporate Taxation; Marginal Effective Tax Rates; Investment; Tax Reforms;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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