Do Taxes Distort Firms' Investment Choices? Evidence from Industry‐Level Data

Liu, Li (2012) Do Taxes Distort Firms' Investment Choices? Evidence from Industry‐Level Data. In: American Economic Association Annual Conference, 05/01/2012-08/01/2012, Chicago, USA.

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Abstract

The U.S. corporate income tax system provides investment incentives that vary across asset types. Do corporations’ investment choices respond to these differences and if so, by how much? I analyze the effect of corporate income taxes on the allocation of new capital investment in the U.S. economy by constructing an industry-level panel data from 1962 to 1997. My preferred-IV estimates of the asset substitution elasticities suggest a sizable interasset distortion effect of corporate income taxes. Substitutability is the strongest between machinery
equipment and computing and electronic equipment. Compared to a revenue-neutral uniform tax scheme, differential corporate income taxes cause under-investment in computing and electronic equipment and over-investment in machinery and transportation equipment.

Item Type: Conference or Workshop Item (Paper)
Keywords: User cost of capital, Investment choices, Efficiency cost, Corporate income taxation
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 21 Aug 2012 15:33
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/4105

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