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The Impact of Tax Changes on the Short-run Investment Behaviour of New Zealand Firms

Author

Listed:
  • Richard Fabling
  • Richard Kneller
  • Lynda Sanderson

    (The Treasury)

Abstract

This paper examines firm-level investment responses to exogenous changes in the forward looking user cost of capital associated with reforms to the corporate and personal tax system over the last decade. Adjustments to personal tax rates and fiscal depreciation allowances provide a direct lever through which government policy can affect the cost of capital faced by firms. The effect of these tax adjustments differs across firms according to their asset structure, providing both inter-temporal and inter-firm variation in UCCs and enabling an assessment of the short-run impact of UCC changes on investment behaviour. This analysis shows that while tax-induced changes in the UCC have significantly affected investment behaviour among some firms, the aggregate impacts are likely to have been negligible as the industries in which investment impacts are observed make a very small contribution to aggregate investment.

Suggested Citation

  • Richard Fabling & Richard Kneller & Lynda Sanderson, 2015. "The Impact of Tax Changes on the Short-run Investment Behaviour of New Zealand Firms," Treasury Working Paper Series 15/05, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:15/05
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    File URL: https://treasury.govt.nz/sites/default/files/2015-06/twp15-05.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Benoît Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
    3. 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.
    4. 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," Working Papers 13_14, Motu Economic and Public Policy Research.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Nolan, Gulnara & Nolan, Matt, 2021. "Taxation, user cost of capital and investment behaviour of New Zealand firms," Working Paper Series 21108, Victoria University of Wellington, Chair in Public Finance.
    2. Richard Fabling, 2021. "Of interest? Estimating the average interest rate on debt across firms and over time," Working Papers 21_05, Motu Economic and Public Policy Research.
    3. Nolan, Gulnara & Nolan, Matt, 2021. "Taxation, user cost of capital and investment behaviour of New Zealand firms," Working Paper Series 9461, Victoria University of Wellington, Chair in Public Finance.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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