IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v151y2025ics0140988325007376.html

The impact of corporate taxes on (renewable) power generation capacity

Author

Listed:
  • Meyer, Niklas
  • Wulff, Thorben

Abstract

Using granular data on power-generating assets and rich variation in local business tax rates in Germany, we find that corporate taxes decrease the installed power generation gross capacity in a given municipality. A one standard deviation increase in local business tax rates is associated with a 3 % decrease in renewable power generation and an 11 % decrease in non-renewable power generation in the respective municipality vis-à-vis other municipalities in the same district without a tax increase. Non-taxable entities and state-owned enterprises do not show such investment response. In conservative political environments, this effect is more (less) pronounced for renewable (non-renewable) energy capacity. Our results suggest that increases in corporate tax rates may have unintended consequences for the green transition, hampering the absolute expansion of renewable energy. At the same time, our results suggest that corporate taxes decrease investment in non-renewable energy relatively more, highlighting the importance of examining differential investment effects of corporate taxes and their implications for tax policy in the energy transition.

Suggested Citation

  • Meyer, Niklas & Wulff, Thorben, 2025. "The impact of corporate taxes on (renewable) power generation capacity," Energy Economics, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:eneeco:v:151:y:2025:i:c:s0140988325007376
    DOI: 10.1016/j.eneco.2025.108910
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325007376
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108910?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.

    References listed on IDEAS

    as
    1. Chen, Shuping & Chen, Xia & Cheng, Qiang & Shevlin, Terry, 2010. "Are family firms more tax aggressive than non-family firms?," Journal of Financial Economics, Elsevier, vol. 95(1), pages 41-61, January.
    2. Sylvain Leduc & Daniel Wilson, 2013. "Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 89-142.
    3. Annette Alstadsæter & Salvador Barrios & Gaetan Nicodeme & Agnieszka Maria Skonieczna & Antonio Vezzani, 2018. "Patent boxes design, patents location, and local R&D," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(93), pages 131-177.
    4. Andreas Lichter & Max Löffler & Ingo E. Isphording & Thu-Van Nguyen & Felix Poege & Sebastian Siegloch, 2025. "Profit Taxation, R&D Spending, and Innovation," American Economic Journal: Economic Policy, American Economic Association, vol. 17(1), pages 432-463, February.
    5. Michael Salinger & Lawrence H. Summers, 1983. "Tax Reform and Corporate Investment: A Microeconometric Simulation Study," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 247-288, National Bureau of Economic Research, Inc.
    6. Cohn, Jonathan B. & Liu, Zack & Wardlaw, Malcolm I., 2022. "Count (and count-like) data in finance," Journal of Financial Economics, Elsevier, vol. 146(2), pages 529-551.
    7. Xavier Giroud & Joshua Rauh, 2019. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1262-1316.
    8. Sebastian Link & Manuel Menkhoff & Andreas Peichl & Paul Schüle, 2024. "Downward Revision of Investment Decisions after Corporate Tax Hikes," American Economic Journal: Economic Policy, American Economic Association, vol. 16(4), pages 194-222, November.
    9. Kenny Z. Lin & Lillian F. Mills & Fang Zhang & Yongbo Li, 2018. "Do Political Connections Weaken Tax Enforcement Effectiveness?," Contemporary Accounting Research, John Wiley & Sons, vol. 35(4), pages 1941-1972, December.
    10. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 673-693, November.
    11. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    12. Sean Mc Auliffe & Georg U. Thunecke & Georg Wamser, 2023. "The Tax-Elasticity of Tangible Fixed Assets: Evidence from Novel Corporate Tax Data," CESifo Working Paper Series 10628, CESifo.
    13. Martin Jacob & Roni Michaely & Maximilian A Müller, 2019. "Consumption Taxes and Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 3144-3182.
    14. Mihir A Desai & Dhammika Dharmapala, 2009. "Corporate Tax Avoidance and Firm Value," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 537-546, August.
    15. Tao Zeng, 2010. "Ownership Concentration, State Ownership, and Effective Tax Rates: Evidence from China’s Listed Firms," Accounting Perspectives, John Wiley & Sons, vol. 9(4), pages 271-289, December.
    16. Ajay Agrawal & Carlos Rosell & Timothy Simcoe, 2020. "Tax Credits and Small Firm R&D Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 12(2), pages 1-21, May.
    17. Shevlin, Terry & Shivakumar, Lakshmanan & Urcan, Oktay, 2019. "Macroeconomic effects of corporate tax policy," Journal of Accounting and Economics, Elsevier, vol. 68(1).
    18. Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the political economics of tax reforms: survey and empirical assessment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 598-624, August.
    19. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
    20. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    21. Michaël Aklin & Johannes Urpelainen, 2013. "Political Competition, Path Dependence, and the Strategy of Sustainable Energy Transitions," American Journal of Political Science, John Wiley & Sons, vol. 57(3), pages 643-658, July.
    22. Fleckenstein, Matthias & Longstaff, Francis A. & Strebulaev, Ilya A., 2020. "Corporate Taxes and Capital Structure: A Long-Term Historical Perspective," Critical Finance Review, now publishers, vol. 9(1-2), pages 1-28, June.
    23. Norman Gemmell & Richard Kneller & Danny McGowan & Ismael Sanz & José F. Sanz‐Sanz, 2018. "Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 372-399, April.
    24. Christian Baretti & Doina Radulescu & Michael Stimmelmayr & Doina Maria Radulescu, 2008. "The Corporate Tax Reform of 2008: Germany’s Answer to Globalization – or Just Patchwork?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(03), pages 50-59, October.
    25. Geraldine Ang & Dirk Röttgers & Pralhad Burli, 2017. "The empirics of enabling investment and innovation in renewable energy," OECD Environment Working Papers 123, OECD Publishing.
    26. Christian Baretti & Doina Radulescu & Michael Stimmelmayr, 2008. "The Corporate Tax Reform of 2008: Germany’s Answer to Globalization – or Just Patchwork?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(3), pages 50-59, October.
    27. Antonio De Socio & Valentina Nigro, 2012. "Does corporate taxation affect cross-country firm leverage?," Temi di discussione (Economic working papers) 889, Bank of Italy, Economic Research and International Relations Area.
    28. Foremny, Dirk & Riedel, Nadine, 2014. "Business taxes and the electoral cycle," Journal of Public Economics, Elsevier, vol. 115(C), pages 48-61.
    29. Dina Azhgaliyeva & John Beirne & Ranjeeta Mishra, 2023. "What matters for private investment in renewable energy?," Climate Policy, Taylor & Francis Journals, vol. 23(1), pages 71-87, January.
    30. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    31. Yuliya Tyurina & Svetlana Frumina & Svetlana Demidova & Aidyn Kairbekuly & Maria Kakaulina, 2023. "Estimation of Tax Expenditures Stimulating the Energy Sector Development and the Use of Alternative Energy Sources in OECD Countries," Energies, MDPI, vol. 16(6), pages 1-17, March.
    32. John R. Graham & Michelle Hanlon & Terry Shevlin & Nemit Shroff, 2017. "Tax Rates and Corporate Decision-making," The Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 3128-3175.
    33. Mohammad Makki & Jeanne Laure Mawad & Mira Khalili, 2023. "Impact of oil rents, oil prices, and investment taxes on renewable energy consumption and investment: An investigation," International Journal of Management and Sustainability, Conscientia Beam, vol. 12(3), pages 435-447.
    34. Rao, Nirupama, 2016. "Do tax credits stimulate R&D spending? The effect of the R&D tax credit in its first decade," Journal of Public Economics, Elsevier, vol. 140(C), pages 1-12.
    35. Dogan, Eyup & Hodžić, Sabina & Šikić, Tanja Fatur, 2023. "Do energy and environmental taxes stimulate or inhibit renewable energy deployment in the European Union?," Renewable Energy, Elsevier, vol. 202(C), pages 1138-1145.
    36. Chansog (Francis) Kim & Liandong Zhang, 2016. "Corporate Political Connections and Tax Aggressiveness," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 78-114, March.
    37. Zhenhua Chen & Deen Kemsley & Padmakumar Sivadasan, 2021. "The Comprehensive Tax Gain from Leverage," European Accounting Review, Taylor & Francis Journals, vol. 30(2), pages 381-403, March.
    38. repec:ces:ifodic:v:6:y:2008:i:3:p:14567224 is not listed on IDEAS
    39. repec:bla:jfinan:v:59:y:2004:i:6:p:2451-2487 is not listed on IDEAS
    40. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    41. Kenneth J. Klassen & Jeffrey A. Pittman & Margaret P. Reed & Steve Fortin, 2004. "A Cross†national Comparison of R&D Expenditure Decisions: Tax Incentives and Financial Constraints," Contemporary Accounting Research, John Wiley & Sons, vol. 21(3), pages 639-680, September.
    42. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
    43. Ben Lockwood & Matthew Lockwood, 2022. "How Do Right-Wing Populist Parties Influence Climate and Renewable Energy Policies? Evidence from OECD Countries," Global Environmental Politics, MIT Press, vol. 22(3), pages 12-37, Summer.
    44. Dobridge, Christine L. & Lester, Rebecca & Whitten, Andrew, 2022. "IPOs and Corporate Tax Planning," Research Papers 4064, Stanford University, Graduate School of Business.
    45. Martin Jacob, 2022. "Real Effects of Corporate Taxation: A Review," European Accounting Review, Taylor & Francis Journals, vol. 31(1), pages 269-296, January.
    46. Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2018. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," American Economic Review, American Economic Association, vol. 108(2), pages 393-418, February.
    47. Abban, Abdul Rashid & Hasan, Mohammad Zahid, 2021. "Revisiting the determinants of renewable energy investment - New evidence from political and government ideology," Energy Policy, Elsevier, vol. 151(C).
    48. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January.
    49. Cadoret, Isabelle & Padovano, Fabio, 2016. "The political drivers of renewable energies policies," Energy Economics, Elsevier, vol. 56(C), pages 261-269.
    50. Bloom, Nick & Griffith, Rachel & Van Reenen, John, 2002. "Do R&D tax credits work? Evidence from a panel of countries 1979-1997," Journal of Public Economics, Elsevier, vol. 85(1), pages 1-31, July.
    51. Gilbert E. Metcalf, 2010. "Investment in Energy Infrastructure and the Tax Code," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 1-33, National Bureau of Economic Research, Inc.
    52. Qingyuan Li & Edward L. Maydew & Richard H. Willis & Li Xu, 2022. "Corporate tax behavior and political uncertainty: Evidence from national elections around the world," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1605-1641, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lester, Rebecca & Olbert, Marcel, 2025. "Firms’ real and reporting responses to taxation: A review," Journal of Accounting and Economics, Elsevier, vol. 80(2).
    2. Luca Menicacci, 2025. "Real effects of investment tax incentives: evidence from Italian private firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 29(2), pages 409-451, June.
    3. Tan, Xue & Yin, Jingwei & Lin, Ning, 2025. "The unforgettable past: The long-term impact of war on corporate tax avoidance in modern China," Research in International Business and Finance, Elsevier, vol. 77(PA).
    4. Amberger, Harald & Gallemore, John & Wilde, Jaron, 2025. "Corporate tax system complexity and investment sensitivity to tax policy changes," arqus Discussion Papers in Quantitative Tax Research 300, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. He, Eric & Jacob, Martin & Vashishtha, Rahul & Venkatachalam, Mohan, 2022. "Does differential taxation of short-term relative to long-term capital gains affect long-term investment?," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    6. Yaohua Qin & He Xiao, 2025. "Air pollution and corporate tax avoidance," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 475-503, January.
    7. Müller, Raphael & Spengel, Christoph & Vay, Heiko, 2020. "On the determinants and effects of corporate tax transparency: Review of an emerging literature," ZEW Discussion Papers 20-063, ZEW - Leibniz Centre for European Economic Research.
    8. Han, Xiaomei & Wang, Jie & Cheng, Hanxiu, 2021. "The effect of corporate tax avoidance on salary distribution——Empirical evidence from publicly listed companies in China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    9. Schwab, Thomas & Todtenhaupt, Maximilian, 2021. "Thinking outside the box: The cross-border effect of tax cuts on R&D," Journal of Public Economics, Elsevier, vol. 204(C).
    10. Kovermann, Jost & Velte, Patrick, 2019. "The impact of corporate governance on corporate tax avoidance—A literature review," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    11. Eichfelder, Sebastian & Jacob, Martin & Kalbitz, Nadine & Wentland, Kelly, 2023. "How do corporate tax rates alter conforming tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 277, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Paulo Jorge Varela Lopes Dias & Pedro Miguel Gomes Reis, 2018. "The relationship between the effective tax rate and the nominal rate," Contaduría y Administración, Accounting and Management, vol. 63(2), pages 23-24, Junio.
    13. Jian Chu & Yaowen Shan & Gary Gang Tian, 2025. "Corrupt tax bureau commissioners and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 30(2), pages 1873-1915, June.
    14. David Gstrein & Florian Neumeier & Andreas Peichl & Pascal Zamorski, 2025. "Capitalists, Workers and Landlords: A Comprehensive Analysis of Corporate Tax Incidence," RFBerlin Discussion Paper Series 25143, ROCKWOOL Foundation Berlin (RFBerlin).
    15. Yu Shen & Di Gao & Di Bu & Lina Yan & Ping Chen, 2019. "CEO hometown ties and tax avoidance‐evidence from China's listed firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1549-1580, March.
    16. Shi, Hanzhong & Wu, Kaishu & Zhai, Kerui, 2025. "Employee education and corporate tax outcomes: Evidence from firm-level reporting," Advances in accounting, Elsevier, vol. 68(C).
    17. Chen, Jie & Mishra, Tapas & Song, Wei & Zhang, Qingjing & Zhang, Zhuang, 2024. "The impact of bank mergers on corporate tax aggressiveness," Journal of Corporate Finance, Elsevier, vol. 84(C).
    18. Chen, Sheng-Syan & Kao, Wei-Chuan & Wang, Yanzhi, 2021. "Tax policy and innovation performance: Evidence from enactment of the alternative simplified credit," Journal of Banking & Finance, Elsevier, vol. 125(C).
    19. Juan Monterrey Mayoral & Amparo Sánchez Segura, 2015. "Planificación fiscal y Gobierno Corporativo en las empresas cotizadas españolas," Hacienda Pública Española / Review of Public Economics, IEF, vol. 214(3), pages 55-89, September.
    20. Xiao, He & Xi, Jianqun, 2025. "The Effect of the Invisible Power: Board Informal Hierarchy and Corporate Tax Avoidance," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 59(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

    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:eneeco:v:151:y:2025:i:c:s0140988325007376. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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/eneco .

    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.