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Taxation and Private Investment: Evidence for Chile

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Author Info
Rodrigo Vergara () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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Abstract

Along 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 paper 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. Macro data for the period 1975-2003 are used and the evidence indicates that the tax reform explains an increase in private investment of three percentage points of the GDP. On the other hand, information on 87 publicly held companies is used to construct a panel for the period 1980-2002. The microeconomic evidence confirms that investment was positively affected by the tax reform.

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Publisher Info
Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 268.

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Date of creation: 2004
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Handle: RePEc:ioe:doctra:268

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Related research
Keywords: Private investment; Corporate income tax; User’s cost of capital.;

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: 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

References listed on IDEAS
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  1. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, Oxford University Press, vol. 7(1), pages 95-114, January.
  2. Chang-Tai Hsieh & Jonathan A. Parker, 2006. "Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom," NBER Working Papers 12104, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rodrigo Cerda & Felipe Larraín, 2005. "Inversión Privada e Impuestos Corporativos: Evidencia para Chile," Documentos de Trabajo 297, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
    Other versions:
  2. Jose De Gregorio, 2004. "Economic Growth in Chile: Evidence, Sources and Prospects," Working Papers Central Bank of Chile 298, Central Bank of Chile. [Downloadable!]
  3. Igal Magendzo, 2004. "Determinantes de la Inversión en Chile," Working Papers Central Bank of Chile 303, Central Bank of Chile. [Downloadable!]
  4. Rodrigo Vergara, 2005. "Productividad en Chile: Determinantes y Desempeño," Documentos de Trabajo 296, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  5. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," IMF Working Papers 06/152, International Monetary Fund. [Downloadable!]
  6. Bernardo Dominichetti H. & María Dolores Roeschmann G., 2006. "Inversión, Flujo de Caja y Colocaciones: Evidencia con Datos Agregados," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 9(1), pages 79-83, April. [Downloadable!]
  7. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3). [Downloadable!] (restricted)
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