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How do Taxes Affect Investment and Productivity?: An Industry-Level Analysis of OECD Countries

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  • Laura Vartia
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    Abstract

    This paper analyses how different tax policies can affect investment and productivity. To address this question the paper uses industry-level data from a set of OECD countries and examines whether different industries are affected differently by taxation. Investment is shown to respond negatively to an increase in the corporate tax rate and a decrease in capital depreciation allowances through changes in the user cost of capital. The analysis of potential links between taxes and productivity tests the hypothesis that taxes affect productivity through different channels and that due to some salient industry characteristics some industries are inherently more affected than others by certain taxes. The paper finds evidence that corporate and top personal income taxes have a negative effect on productivity. In contrast, tax incentives for research and development (R&D) are found to have a positive effect on productivity. These effects are stronger in those industries that are inherently more profitable, have more entrepreneurial activity and are more R&D intensive, respectively. L'effet des politiques de taxation sur les investissements and la productivité dans les pays de l'OCDE : Une analyse sectorielle Cette étude vise à étudier l’effet des politiques de taxation sur les investissements et la productivité des entreprises. Nous utilisons des données sectorielles pour un ensemble de pays de l’OCDE et analysons dans quelle mesure l’impact de la taxation diffère selon les secteurs. Selon nos résultats, une hausse de l’impôt sur les sociétés ou une baisse des provisions pour amortissement du capital provenant de variations du coût d’usage du capital induisent une baisse de l’investissement des entreprises. Nous analysons les mécanismes de l’impact de la taxation des entreprises sur leur productivité et nous testons si certains secteurs y sont plus sensibles que d’autres. Selon nos estimations, l’impôt sur les sociétés, mais aussi les dernières tranches de l’impôt sur le revenu, ont un impact négatif sur la productivité. En revanche, les avantages fiscaux visant à promouvoir la recherche et développement semblent avoir un effet bénéfique sur la productivité. Ces effets sont plus forts dans les secteurs plus rentables, dans les secteurs caractérisés par un niveau plus élevé d’activité entrepreneuriale, et dans les secteurs caractérisés par un niveau plus élevé de recherche et développement.

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    File URL: http://dx.doi.org/10.1787/230022721067
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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 656.

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    Date of creation: 19 Dec 2008
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    Handle: RePEc:oec:ecoaaa:656-en

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    Keywords: user cost; total factor productivity; corporate and personal income taxation; investment; impôt sur les sociétés; productivité globale des facteurs; investissement; coût d'usage; impôt sur le revenu;

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    Cited by:
    1. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
    2. Boris Cournède & Antoine Goujard & Álvaro Pina, 2013. "How to Achieve Growth- and Equity-friendly Fiscal Consolidation?: A Proposed Methodology for Instrument Choice with an Illustrative Application to OECD Countries," OECD Economics Department Working Papers 1088, OECD Publishing.
    3. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, OECD Publishing, vol. 2011(1), pages 1-44.
    4. Masso, Jaan & Meriküll, Jaanika & Vahter, Priit, 2013. "Shift from gross profit taxation to distributed profit taxation: Are there effects on firms?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1092-1105.

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