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Heterogeneous Tax Sensitivity of Firm-level Investments

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  • Keuschnigg, Christian
  • Egger, Peter
  • ,
Abstract
This paper introduces a stylized theoretical framework to identify five different firm types depending on their financial situation and their ownership structure. Based on these firm types, the model explains the heterogeneous tax sensitivity of firm-level investments. Guided by the theoretical model, we empirically identify these partly latent firm types using a threshold estimation approach. The empirical analysis uses a large firm database for 17 countries allowing for a quantification of the regime-specific investment responses to taxation. We find important differences in the tax sensitivity of investment across firm-types for dividend as well as for corporate taxation. The impact of corporate taxation is up to 70% higher for entrepreneurial firms than for managerial firms. In contrast, dividend taxation has a comparable negative effect for cash-constrained managerial firms and entrepreneurial firms but no significant impact on their unconstrained counterparts.

Suggested Citation

  • Keuschnigg, Christian & Egger, Peter & ,, 2018. "Heterogeneous Tax Sensitivity of Firm-level Investments," CEPR Discussion Papers 13341, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13341
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    Cited by:

    1. Hoseini, M., 2014. "Misreporting in the Value-Added Tax and the Optimal Enforcement," Other publications TiSEM b8a0a931-1092-4c98-bd36-4, Tilburg University, School of Economics and Management.
    2. Annette Alstadsæter & Martin Jacob & Roni Michaely, 2017. "Do Dividend Taxes Affect Corporate Investment?," NBER Chapters, in: Personal Income Taxation and Household Behavior (TAPES), National Bureau of Economic Research, Inc.
    3. Martin Falk, 2016. "Austria 2025 – Corporate Investment in Austria. Stylised Facts, Impacts, Determinants and Investment Policies," WIFO Studies, WIFO, number 59183.
    4. Laurent Bach & Antoine Bozio & Arthur Guillouzouic & Claire Leroy & Clément Malgouyres, 2024. "Follow the money! Why dividends overreact to flat-tax reforms," Institut des Politiques Publiques halshs-02415470, HAL.
    5. Dai, Xiaoyong & Chapman, Gary, 2022. "R&D tax incentives and innovation: Examining the role of programme design in China," Technovation, Elsevier, vol. 113(C).
    6. Hyeongtae Cho & SungMan Yoon, 2023. "Do Governmental Tax Reliefs for Investment Lead to Investment Efficiency and Sustainability for SMEs? Evidence From South Korea," SAGE Open, , vol. 13(1), pages 21582440231, February.

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    More about this item

    Keywords

    Corporate tax; Personal taxes; Firm heterogeneity; Access to capital; Manager-shareholder conflicts;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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