IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v261y2026ics0165176526000212.html

Why do effective tax rates fall with capital intensity?

Author

Listed:
  • Bournakis, I.
  • Christopoulos, D.

Abstract

This paper examines why corporate effective tax rates (ETRs) tend to decline as capital per worker increases. We decompose the ETR into two channels: a statutory cost-recovery component that mechanically lowers the taxable base with capital accumulation, and a discretionary tax-planning component whose effectiveness rises with capital intensity. Using firm-level data from six European countries, we estimate this relationship non-parametrically. We find that a 10% increase in capital intensity reduces the ETR by about 0.30 percentage points in Hungary, 0.11 points in Spain, and 0.10 points in Italy. By contrast, no significant relationship is found for France, Germany, and the UK, suggesting cross-country differences in cost-recovery provisions and enforcement environments.

Suggested Citation

  • Bournakis, I. & Christopoulos, D., 2026. "Why do effective tax rates fall with capital intensity?," Economics Letters, Elsevier, vol. 261(C).
    • Handle: RePEc:eee:ecolet:v:261:y:2026:i:c:s0165176526000212
    DOI: 10.1016/j.econlet.2026.112827
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176526000212
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2026.112827?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:261:y:2026:i:c:s0165176526000212. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.