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Corporate tax, firm destruction and capital stock accumulation: Evidence from Chilean plants

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  • Rodrigo Cerda; Diego Saravia.

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

  • Diego Saravia.

Abstract

We investigate the impact of corporate taxation on capital stock. In the paper, we indicate that corporate taxation might not only distort the decision of each firm to invest but could also destroy firms. With this in mind, we estimate capital demand equations, correcting for self-selection in the decision to produce by using the Heckman-Lee method and its panel data counterpart (Kyriadizou method). We use Chilean plant-level data , which is a period with large variability in corporate taxation. We find that corporate taxation has a considerable impact on the creation-destruction of firms and in addition, it also has an important impact on the decision of how much to invest for firms that are already involved in production.

Suggested Citation

  • Rodrigo Cerda; Diego Saravia. & Diego Saravia., 2009. "Corporate tax, firm destruction and capital stock accumulation: Evidence from Chilean plants," Documentos de Trabajo 364, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:364
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    File URL: http://www.economia.uc.cl/docs/dt_364.pdf
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    Cited by:

    1. Correa, Juan & Lorca, Miguel & Parro, Francisco, 2015. "Measuring the Impact of Financial Taxation on Capital," MPRA Paper 64378, University Library of Munich, Germany.

    More about this item

    Keywords

    Corporate taxation; capital stock;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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