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Downward Revision of Investment Decisions after Corporate Tax Hikes

Author

Listed:
  • Sebastian Link

  • Manuel Menkhoff

  • Andreas Peichl

  • Paul Schüle

Abstract

This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1,400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how tax hikes induce firms to revise their investment decisions. On average, the share of firms that invest less than previously planned increases by three percentage points after a tax hike. This effect is twice as large during recessions.

Suggested Citation

  • Sebastian Link & Manuel Menkhoff & Andreas Peichl & Paul Schüle, 2022. "Downward Revision of Investment Decisions after Corporate Tax Hikes," CESifo Working Paper Series 9786, CESifo.
    • Handle: RePEc:ces:ceswps:_9786
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    References listed on IDEAS

    as
    1. Taylor, Alan M. & Dube, Arindrajit & Girardi, Daniele & Jordà , Òscar, 2023. "A Local Projections Approach to Difference-in-Differences Event Studies," CEPR Discussion Papers 18141, Centre for Economic Policy Research.
    2. Stefan Sauer & Klaus Wohlrabe, 2020. "ifo Handbuch der Konjunkturumfragen," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 88, September.
    3. Bachmann, Rüdiger & Zorn, Peter, 2020. "What drives aggregate investment? Evidence from German survey data," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    4. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sebastian Blesse & Florian Buhlmann & Philipp Heil & Davud Rostam-Afschar, 2025. "Local Policy Misperceptions and Investment: Experimental Evidence from Firm Decision Makers," CESifo Working Paper Series 11855, CESifo.
    2. Lundberg, Jacob & Massenz, Gabriella, 2025. "Local Corporate Taxation and Business Activity," Working Paper Series 1531, Research Institute of Industrial Economics.
    3. Michael Funke & Raphael Terasa, 2026. "Germany’s Swift Package of Business Tax Breaks Aimed at Stimulating Investment," CESifo Working Paper Series 12385, CESifo.
    4. Aksoy, Cevat Giray & Dolls, Mathias & Klejdysz, Justyna & Peichl, Andreas & Windsteiger, Lisa, 2025. "Speaking of Debt: Framing, Guilt, and Economic Choices," CEPR Discussion Papers 20588, Centre for Economic Policy Research.
    5. Jamal, Usama, 2026. "Tax Rules and Capital Reallocation: Real Effects of Anti-Tax Avoidance Policies," CEPREMAP Working Papers (Docweb) 2603, CEPREMAP.
    6. Bilicka, Katarzyna & Dubinina, Evgeniya & Janský, Petr, 2026. "Fiscal consequences of corporate tax avoidance," Journal of Public Economics, Elsevier, vol. 257(C).
    7. 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.
    8. Carsten Creutzburg & Elias Benedict Leppert & Wolfgang Maennig, 2026. "Fiscal Policy, Distribution of Local Economic Activity, and Road Freight Flows," Working Papers 083, Chair for Economic Policy, University of Hamburg.
    9. Marcel Schlepper & Timo Wochner, 2026. "Economic Development in the Shadow of War," CESifo Working Paper Series 12915, CESifo.
    10. 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).
    11. Meyer, Niklas & Wulff, Thorben, 2025. "The impact of corporate taxes on (renewable) power generation capacity," Energy Economics, Elsevier, vol. 151(C).
    12. Sebastian Link & Manuel Menkhoff & Andreas Peichl & Paul Schüle, 2022. "Corporate Taxes Reduce Investment: New Evidence from Germany," EconPol Policy Brief 44, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    13. Best, Lea & Born, Benjamin & Menkhoff, Manuel, 2025. "The Impact of Interest: Firms' Investment Sensitivity to Interest Rates," CEPR Discussion Papers 20695, Centre for Economic Policy Research.
    14. Lichter Andreas & Löffler Max & Siegloch Sebastian, 2024. "Der Einfluss lokaler Steuerpolitik auf betriebliche F&E-Aktivitäten," Wirtschaftsdienst, Paradigm, vol. 104(11), pages 758-762.
    15. Neumeier, Florian & Gstrein, David & Peichl, Andreas & Zamorski, Pascal, 2025. "Pricing in the Taxman: Corporate Tax Incidence and Commercial Real Estate," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325380, Verein für Socialpolitik / German Economic Association.

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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