Taxation and private investment: evidence for Chile
AbstractAlong with several structural reforms, Chile embarked upon a major income tax reform in the eighties. Its basic feature was a significant reduction in the corporate income tax rate. The purpose of this article is to investigate empirically the link between the tax reform and the investment performance of Chile since the reform. Macroeconomic and microeconomic evidence is found to be consistent with the hypothesis of the reduction in the corporate income tax as being one of the determinants of the investment boom of the late eighties and nineties in Chile. Our estimations suggest that there are two channels in which taxes affect investment: on the one hand, higher taxes increase the cost of capital (cost of capital channel); and on the other, they reduce internal funds available for investment (liquidity constraint channel).
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics.
Volume (Year): 42 (2010)
Issue (Month): 6 ()
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Other versions of this item:
- Rodrigo Vergara, 2004. "Taxation and Private Investment: Evidence for Chile," Documentos de Trabajo 268, Instituto de Economia. Pontificia Universidad Católica de Chile..
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
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