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

Author/Editor:

Serhan Cevik ; Fedor Miryugin

Publication Date:

March 2, 2018

Electronic Access:

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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.

Series:

Working Paper No. 18/34

Subject:

English

Publication Date:

March 2, 2018

ISBN/ISSN:

9781484344156/1018-5941

Stock No:

WPIEA2018034

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

27

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