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The Effect of Corporate Taxes on Investment and Entrepreneurship

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Author Info
Simeon Djankov
Tim Ganser
Caralee McLiesh
Rita Ramalho
Andrei Shleifer

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Abstract

We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13756.

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Date of creation: Jan 2008
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Handle: RePEc:nbr:nberwo:13756

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Find related papers by JEL classification:
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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(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. Strulik, Holger & Trimborn, Timo, 2008. "Anticipated Tax Reforms and Temporary Tax Cuts: A General Equilibrium Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-406, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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