Tax Losses and Firm Investment: Evidence from Tax Statistics

Konferenzbeitrag

The elasticity of business capital to changes in its user cost is central to the economic analysis of fiscal policies. As a major component, the user cost of capital includes a firm's marginal tax rate. Due to the asymmetric treatment of tax losses and profits, the marginal tax rate can depart strongly from the statutory tax rate; it thus differs across firms. Previous studies have mis-measured the firm-specific marginal tax rate because of data limitations. This leads to a systematic mis-representation of the user cost of capital and neglects an important source of variation. We use a novel firm-level panel data set including official corporate income tax returns to overcome these problems. Our results show that accounting for tax losses reduces the estimated user cost elasticity of investment. Small and medium sized enterprises seem to be more responsive to tax incentives than larger firms.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2011: Die Ordnung der Weltwirtschaft: Lektionen aus der Krise - Session: Fiscal Policy ; No. G11-V4

Classification and Topics

• Classification: Wirtschaft ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Business Taxes and Subsidies including sales and value-added (VAT) ; Fiscal Policies and Behavior of Economic Agents: Firm ; Firm Behavior: Empirical Analysis
• Subject: Taxation ; Business investment ; Tax loss ; Asymmetric treatment of profits and losses ; User cost of capital

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Walch, Florian ; Dwenger, Nadja
• Event: Veröffentlichung
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/48699
• Last update: 10.03.2025, 11:44 AM CET