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Taxation and Private Investment: Evidence for Chile

  • Rodrigo Vergara

    ()

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Along with several structural reforms, Chile embarked upon a major income tax reform in the eighties. Its basic feature was a significant reduction in the corporate income tax rate. The purpose of this paper is to investigate empirically the link between the tax reform and the investment performance of Chile since the reform. Macroeconomic and microeconomic evidence is found to be consistent with the hypothesis of the reduction in the corporate income tax as being one of the determinants of the investment boom of the late eighties and nineties in Chile. Macro data for the period 1975-2003 are used and the evidence indicates that the tax reform explains an increase in private investment of three percentage points of the GDP. On the other hand, information on 87 publicly held companies is used to construct a panel for the period 1980-2002. The microeconomic evidence confirms that investment was positively affected by the tax reform.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 268.

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Date of creation: 2004
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Handle: RePEc:ioe:doctra:268
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  1. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, World Bank Group, vol. 7(1), pages 95-114, January.
  2. Chang-Tai Hsieh & Jonathan A. Parker, 2006. "Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom," NBER Working Papers 12104, National Bureau of Economic Research, Inc.
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