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Corporate taxation and capital accumulation


  • Stephen Bond

    () (Nuffield College, Department of Economics, and Centre for Business Taxation, University of Oxford, UK, and Institute for Fiscal Studies)

  • Jing Xing

    () (Nuffield College, Department of Economics, and Centre for Business Taxation, University of Oxford, UK)


We present new empirical evidence that aggregate capital accumulation is strongly influenced by the user cost of capital and, in particular, by corporate tax incentives summarised in the tax-adjusted user cost. We use sectoral panel data for the USA, Japan, Australia and ten EU countries over the period 1982-2007. Our panel combines data on capital stocks, value-added and relative prices from the EU KLEMS database with measures of effective corporate tax rates from the Oxford University Centre for Business Taxation. Given the tax-adjusted user cost, we find little additional information in statutory corporate tax rates or effective average tax rates.

Suggested Citation

  • Stephen Bond & Jing Xing, 2010. "Corporate taxation and capital accumulation," Working Papers 1015, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:1015

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    References listed on IDEAS

    1. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1875-1911, December.
    2. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 639-660, winter.
    3. Cummins, Jason G. & Hassett, Kevin A. & Hubbard, R. Glenn, 1996. "Tax reforms and investment: A cross-country comparison," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 237-273, October.
    4. Marcel P. Timmer & Mary O’Mahony & Bart van Ark, 2007. "EU KLEMS Growth and Productivity Accounts: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 71-85, Spring.
    5. Stefano Scarpetta & Thierry Tressel, 2002. "Productivity and Convergence in a Panel of OECD Industries: Do Regulations and Institutions Matter?," OECD Economics Department Working Papers 342, OECD Publishing.
    6. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    7. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
    8. Goolsbee, Austan, 2004. "Taxes and the quality of capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 519-543, March.
    9. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
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    Cited by:

    1. John Creedy & Norman Gemmell, 2015. "Taxation and the User Cost of Capital: An Introduction," Treasury Working Paper Series 15/02, New Zealand Treasury.
    2. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2016. "Trade Credit and Taxes," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 132-139, March.
    3. Stefan Lutz, 2012. "Effects of taxation on European multi-nationals’ financing and profits," The School of Economics Discussion Paper Series 1214, Economics, The University of Manchester.
    4. Fabling, Richard & Gemmell, Norman & Kneller, Richard & Sanderson, Lynda, 2013. "Estimating Firm-Level Effective Tax Rates and the User Cost of Capital in New Zealand," Working Paper Series 2854, Victoria University of Wellington, Chair in Public Finance.
    5. Richard Fabling & Norman Gemmell & Richard Kneller & Lynda Sanderson, 2013. "Estimating Firm-Level Effective Marginal Tax Rates and the User Cost of Capital in New Zealand," Treasury Working Paper Series 13/29, New Zealand Treasury.
    6. Bull, Nicholas & Dowd, Tim & Moomau, Pamela, 2011. "Corporate Tax Reform: A Macroeconomic Perspective," National Tax Journal, National Tax Association, vol. 64(4), pages 923-941, December.

    More about this item


    capital accumulation; user cost of capital; corporate taxation;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies


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