Macroeconomic Effects of Corporate Tax Policy
55 Pages Posted: 27 Jun 2016 Last revised: 29 Mar 2019
Date Written: March 26, 2019
Prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence. We argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions, tax deductions, tax enforcement and firms’ tax planning. We propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms, which reflect not only statutory tax rates, but also other features of the tax code, enforcement, and firms' tax planning. We find a strong robust negative relation between country-level effective tax rates and future macroeconomic growth.
Keywords: Economic growth, Corporate tax, Effective tax rate
JEL Classification: H25, H26, M41
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