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Heterogeneous Tax Sensitivity of Firm-level Investments

Author

Listed:
  • Egger, Peter

    (ETH Zuerich)

  • Erhardt, Katharina

    (ETH Zuerich)

  • Keuschnigg, Christian

    (Institute for Advanced Studies, Vienna and University of St. Gallen)

Abstract

Firms are heterogeneous in size, productivity, ownership concentration, governance, financial structure and other dimensions. This paper introduces a stylized theoretical framework to account for such differences and to explain the heterogeneous tax sensitivity of firm-level investments across firm types. We econometrically test the theoretical predictions, taking account of selection of firms into different regimes. We find important differences in the tax sensitivity of investment of small entrepreneurial and larger managerial firms in different financial regimes that are largely in line with theoretical results.

Suggested Citation

  • Egger, Peter & Erhardt, Katharina & Keuschnigg, Christian, 2014. "Heterogeneous Tax Sensitivity of Firm-level Investments," Economics Series 306, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:306
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    Keywords

    Corporate tax; personal taxes; firm heterogeneity; access to capital; manager-shareholder conflicts;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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