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American Economic Journal: Macroeconomics: Vol. 2 No. 3 (July 2010)

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The Effect of Corporate Taxes on Investment and Entrepreneurship

Article Citation

Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho, and Andrei Shleifer. 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship." American Economic Journal: Macroeconomics, 2(3): 31-64.

DOI: 10.1257/mac.2.3.31

Abstract

We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. Corporate tax rates are correlated with investment in manufacturing but not services, as well as with the size of the informal economy. The results are robust to the inclusion of many controls. (JEL E22, F23, G31, H25, H32, L26)

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Authors

Djankov, Simeon (World Bank)
Ganser, Tim (Harvard U)
McLiesh, Caralee (World Bank)
Ramalho, Rita (World Bank)
Shleifer, Andrei (Harvard U)

JEL Classifications

E22: Capital; Investment; Capacity
F23: Multinational Firms; International Business
G31: Capital Budgeting; Fixed Investment and Inventory Studies
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H32: Fiscal Policies and Behavior of Economic Agents: Firm
L26: Entrepreneurship

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