Does Taxation Stifle Corporate Investment? Firm-Level Evidence from ASEAN Countries

March 2, 2018

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Serhan Cevik, and Fedor Miryugin. Does Taxation Stifle Corporate Investment? Firm-Level Evidence from ASEAN Countries, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper conducts a firm-level analysis of the effect of taxation on corporate investment patterns in member states of the Association of Southeast Asian Nations (ASEAN). Using large-scale panel data on nonfinancial firms over the period 1990–2014, and controlling for macro-structural differences among countries, we find a significant degree of persistence in firms’ net fixed investments over time, which vary with firm characteristics, such as size, sales, profitability, leverage, and age. Our analysis brings up interesting empirical results, including nonlinear patterns of behavior in firms’ capital investment decisions acrosss ASEAN countries. Concerning the main variable of interest, we find that a moderate level of taxation does not hinder business investment, but this effect turns negative as higher tax burden raises the user cost of capital and distorts resource allocations.

Subject: Capital spending, Corporate income tax, Corporate taxes, Expenditure, National accounts, Private investment, Public investment and public-private partnerships (PPP), Tax incidence, Tax policy, Taxes

Keywords: Asia and Pacific, Capital spending, Corporate income tax, Cost of capital, Firm characteristic, Firm level, Firm performance, Fixed investment, Global, Investment, Investment behavior, Leverage, Nonfinancial firm, Private investment, Public investment and public-private partnerships (PPP), Southeast Asia, Tax incidence, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/034
Stock No:

WPIEA2018034
ISBN:

9781484344156
ISSN:

1018-5941

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