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The effect of corporate taxes on investment: Evidence from the Colombian firms

Author

Listed:
  • Ligia Alba Melo-Becerra

    (Banco de la República de Colombia)

  • Javier Ávila Mahecha

    (Dirección de Impuestos y Aduanas Nacionales)

  • Jorge Enrique Ramos-Forero

    (Banco de la República de Colombia)

Abstract

The paper assesses the role of taxes on investment in Colombian firms. The analysis is carried out at the firm level for the period 2003-2014. During this period, the national government set five different tax reforms, including changes in the statutory tax rates, tax credits and incentives for corporate investment. The effect of corporate taxation on investment is estimated by first determining the impact of taxation on the cost of capital by computing the effective marginal tax rates (EMTRs) at firm level. Then, we estimate the impact of the cost of capital on investment through a panel data regression. Endogeneity is controlled by an instrumental variable approach, simulating post-reform effective marginal tax rates under pre-reform firm characteristics. Results are robust with different control variables, although some significant differences by size and economic sector of the firm are found.

Suggested Citation

  • Ligia Alba Melo-Becerra & Javier Ávila Mahecha & Jorge Enrique Ramos-Forero, 2017. "The effect of corporate taxes on investment: Evidence from the Colombian firms," Borradores de Economia 1001, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1001
    DOI: 10.32468/be.1001
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    Cited by:

    1. DEPE-SGEE & Diego Vásquez-Escobar & Clark Granger & Norberto Rodríguez-Niño & Andrés Sánchez-Jabba & Carmiña O. Vargas & Fernando Arias-Rodríguez & Ignacio Lozano-Espitia, 2023. "Inversión en maquinaria y equipo en Colombia: determinantes de largo plazo y efectos del COVID 19 sobre su evolución," Borradores de Economia 1235, Banco de la Republica de Colombia.
    2. Ligia Alba Melo-Becerra & Héctor Zárate-Solano & Andrés Camilo Gómez-Molina, 2018. "Elasticidad del ingreso corporativo gravable en Colombia," Borradores de Economia 1046, Banco de la Republica de Colombia.
    3. Alves, Pana & Dejuan, Daniel & Maurin, Laurent, 2019. "Can survey-based information help to assess investment gaps in the EU?," EIB Working Papers 2019/04, European Investment Bank (EIB).
    4. Alejandro López-Vera & Andrés D. Pinchao-Rosero & Norberto Rodríguez-Niño, 2018. "Non-Linear Fiscal Multipliers for Public Expenditure and Tax Revenue in Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 36(85), pages 48-64, November.
    5. Carlos Esteban Posada, 2018. "Efectos de reducir el impuesto a la ganancia (equilibrio parcial versus equilibrio general)," Documentos de Trabajo de Valor Público 16594, Universidad EAFIT.
    6. Ana María Iregui-Bohórquez & Ligia Alba Melo-Becerra & Antonio José Orozco-Gallo, 2020. "Corporate taxes and firms' performance: A meta-frontier approach," Borradores de Economia 1116, Banco de la Republica de Colombia.
    7. María Angélica Arbeláez & Alejandro Becerra & Miguel Benítez, 2021. "Contribución fiscal y tributación efectiva de la industria manufacturera en Colombia," Informes de Investigación 19143, Fedesarrollo.

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    More about this item

    Keywords

    Corporate taxes; Marginal effective tax rate; Investment; cash flows;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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