Tax Uncertainty and Investment: A Cross-Country Empirical Investigation
An empiricial investigation of uncertain tax policy and investment is crucial to a fuller understanding of the interplay between taxes and investment, especially given ambiguities in the limited theoretical literature. In this paper we model the time series of effective tax rates in several OECD countries using ARCH-GARCH models. We then incorporate the resulting tax rate volatility estimates in a panel regression model of investment per worker. We find that the volatility of tax rates has a significant negative impact on investment per worker in these countries.
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