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http://ssrn.com/abstract=1088670
 
 

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The Effect of Corporate Taxes on Investment and Entrepreneurship


Simeon Djankov


New Economic School (NES)

Tim Ganser


Harvard University - Department of Economics

Caralee McLiesh


World Bank - International Finance Corporation (IFC)

Rita Maria Ramalho


World Bank Group - Private Sector Advisory Services Department

Andrei Shleifer


Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

January 2008

NBER Working Paper No. w13756

Abstract:     
We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade.

Number of Pages in PDF File: 67

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Date posted: January 30, 2008  

Suggested Citation

Djankov, Simeon and Ganser, Tim and McLiesh, Caralee and Ramalho, Rita Maria and Shleifer, Andrei, The Effect of Corporate Taxes on Investment and Entrepreneurship (January 2008). NBER Working Paper No. w13756. Available at SSRN: http://ssrn.com/abstract=1088670

Contact Information

Simeon Djankov (Contact Author)
New Economic School (NES) ( email )
47 Nakhimovsky Prospekt
Moscow, 117418
Russia
HOME PAGE: http://www.nes.ru
Tim Ganser
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
Caralee McLiesh
World Bank - International Finance Corporation (IFC) ( email )
2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States
Rita Maria Ramalho
World Bank Group - Private Sector Advisory Services Department ( email )
Washington, DC 20433
United States
Andrei Shleifer
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-5046 (Phone)
617-496-1708 (Fax)
HOME PAGE: http://www.economics.harvard.edu/~ashleife/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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