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

IMF Working Papers, March 2, 2018

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Examines the effect of taxation on corporate investment patterns in member states of the Association of Southeast Asian Nations (ASEAN).
Uses large-scale panel data on nonfinancial firms over the period 1990–2014.
Controls for macro-structural differences among countries.

Firm-level panel analysis of nonfinancial firms spanning 1990–2014.
Controls include firm characteristics such as size, sales, profitability, leverage, and age.
Estimation accounts for persistence in firms’ net fixed investments over time and cross-country macro-structural differences.

There is a significant degree of persistence in firms’ net fixed investments over time.
Investment persistence and patterns vary with firm characteristics:
- Size
- Sales
- Profitability
- Leverage
- Age
Investment behavior exhibits nonlinear patterns across ASEAN countries.
Regarding taxation (main variable of interest):
- A moderate level of taxation does not hinder business investment.
- The effect turns negative at higher tax burdens as they raise the user cost of capital and distort 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

IMF Working Paper — Does Taxation Stifle Corporate Investment? Firm-Level Evidence from ASEAN Countries