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On the measurement of investment types: Heterogeneity in corporate tax elasticities

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  • Hendrik Jungmann
  • Simon Loretz

Abstract

This paper contributes to debates about the appropriate characterisation of heterogeneous investment types and to what extent different investment motives affect the responsiveness to corporate taxation. In particular, we employ and refine a methodology to better evaluate the tax elasticity of investment types. Using a combination of both firm‐specific information and sector‐specific information from input–output tables, we discuss how to classify investment as non‐related, horizontal, vertical and complex types. First, we point out to what extent the resulting classification depends on assumptions made by the researcher. Second, we employ an ample set of classifications and find that non‐related investment reacts stronger to corporate taxation, whereas horizontal investment is less responsive, though, significant negative tax semi‐elasticities turn out for the subset of manufacturing industries. To address inherent characteristics of vertical and complex investment, we extend the methodology and find that, by and large, stronger business motives reduce the tax responsiveness of investment to a larger extent. Given the current debates about substantial corporate tax reforms, it is all the more important to recognise that corporate tax effects can vary fundamentally between countries, driven by country‐specific differences in their composition of industries and investment types.

Suggested Citation

  • Hendrik Jungmann & Simon Loretz, 2019. "On the measurement of investment types: Heterogeneity in corporate tax elasticities," The World Economy, Wiley Blackwell, vol. 42(2), pages 478-508, February.
  • Handle: RePEc:bla:worlde:v:42:y:2019:i:2:p:478-508
    DOI: 10.1111/twec.12672
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    Cited by:

    1. Egger, Peter H. & Erhardt, Katharina & Keuschnigg, Christian, 2020. "Heterogeneous tax sensitivity of firm-level investments," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 512-538.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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