Working Paper: NBER ID: w13756
Authors: Simeon Djankov; Tim Ganser; Caralee McLiesh; Rita Ramalho; Andrei Shleifer
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. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade.
Keywords: Corporate taxes; Investment; Entrepreneurship; Effective tax rates
JEL Codes: G38; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Effective corporate tax rates (K34) | Aggregate investment (E22) |
| Effective corporate tax rates (K34) | Entrepreneurial activity (L26) |
| Effective corporate tax rates (K34) | Growth (O00) |
| Effective corporate tax rates (K34) | Size of the informal economy (E26) |
| Effective corporate tax rates (K34) | Debt-to-equity ratio (G32) |