The Impact of Tax Changes on the Short-Run Investment Behaviour of New Zealand Firms

19 Pages Posted: 16 May 2015

See all articles by Richard Fabling

Richard Fabling

Motu Economic and Public Policy Research Trust

Richard Kneller

University of Nottingham

Lynda Sanderson

Government of New Zealand - Treasury

Date Written: May 14, 2015

Abstract

This paper examines firm-level investment responses to exogenous changes in the forward looking user cost of capital associated with reforms to the corporate and personal tax system over the last decade. Adjustments to personal tax rates and fiscal depreciation allowances provide a direct lever through which government policy can affect the cost of capital faced by firms. The effect of these tax adjustments differs across firms according to their asset structure, providing both inter-temporal and inter-firm variation in UCCs and enabling an assessment of the short-run impact of UCC changes on investment behaviour. This analysis shows that while tax-induced changes in the UCC have significantly affected investment behaviour among some firms, the aggregate impacts are likely to have been negligible as the industries in which investment impacts are observed make a very small contribution to aggregate investment.

Keywords: User Cost of Capital, Tax, Investment

JEL Classification: D22, H20

Suggested Citation

Fabling, Richard Blaikie and Kneller, Richard and Sanderson, Lynda, The Impact of Tax Changes on the Short-Run Investment Behaviour of New Zealand Firms (May 14, 2015). Available at SSRN: https://ssrn.com/abstract=2606417 or http://dx.doi.org/10.2139/ssrn.2606417

Richard Blaikie Fabling (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Lynda Sanderson

Government of New Zealand - Treasury ( email )

No. 1, The Terrace
Wellington, 6011
New Zealand

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