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Differential Corporate taxation and inter-asset investment distortions in South Africa

Author

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  • Mashekwa Maboshe

    (University of Cape Town)

Abstract

South Africa has since the 1990’s actively reformed its corporate tax policy to stimulate investment in various assets and industries. While the investment impact of corporate taxation has been evaluated in various studies, no effort has been made to assess the potential inter-asset distortions due to differential taxation. Using a unique asset-industry level dataset, we find evidence of inter-asset distortions arising from differential taxation of assets and industries in South Africa. In particular, compared to a counterfactual benchmark where tax rates are equalized, we find that differential taxation induces under-investment in non-residential structures and computer equipment and over-investment in machinery and transportation equipment. The immediate policy implications are that ignoring distortions due to heterogeneous tax treatment could understate the efficiency and redistributive effects of tax policy in South Africa.

Suggested Citation

  • Mashekwa Maboshe, 2024. "Differential Corporate taxation and inter-asset investment distortions in South Africa," ERSA Working Paper Series 51, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:51
    as

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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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