Working Paper: NBER ID: w13624
Authors: David Backus; Espen Henriksen; Kjetil Storesletten
Abstract: Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital -- or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue.
Keywords: corporate taxes; capital-output ratios; international capital flows
JEL Codes: E22; F21; H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher corporate tax rates (H29) | lower capital-output ratios (D24) |
| effective tax rates (H29) | higher capital-output ratios (E22) |
| revenue-based tax measures (H20) | lower capital-output ratios (D24) |