Corporate tax hikes and investment
In this paper, Link et al. estimate the causal effect of corporate tax hikes on firm investment of 1,436 tax hikes between 1980 and 2018 in Germany. The authors look at the investment response of corporate firms to these tax changes by leveraging panel data on both planned and realized investment volumes among a large, representative survey of 1,500 German manufacturing firms. They find:
- An economically large and statistically significant investment responses for firms experiencing a tax increase: on average, the share of firms that invest less than previously planned increases by 3 percentage points after a tax hike.
- The magnitude of the investment response varies substantially over the business cycle. Compared to baseline estimates, the share of firms that invest less than previously planned in response to a tax hike is twice as large if taxes are increased during a recession.
Downward Revision of Investment Decisions after Corporate Tax Hikes
Authors: Sebastian Link, Manuel Menkhoff, Andreas Peichl, Paul Schüle
From: Ifo Institute
