The Role of Personal Income Taxes in Corporate Investment Decisions

78 Pages Posted: 28 Jan 2021 Last revised: 30 Apr 2021

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Robert Vossebürger

WHU - Otto Beisheim School of Management

Date Written: December 7, 2020

Abstract

This paper examines the role of personal income taxes in corporate investment decisions. Since personal income taxes increase the cost of labor, firms’ investment decisions can be affected because of the inevitable link of production input factors. Using data on personal income taxes in 30 European countries and a large sample of private firms, we find that personal income taxes substantially reduce investment. The magnitude is comparable to the effect of corporate and value-added taxes. The effect is stronger for low-income earners vis-à-vis high-income earners and for firms with a stronger link between capital and labor input.

Keywords: Personal income taxation, corporate investment

JEL Classification: H25, H32, J23, M54;,J31

Suggested Citation

Jacob, Martin and Vossebürger, Robert, The Role of Personal Income Taxes in Corporate Investment Decisions (December 7, 2020). TRR 266 Accounting for Transparency Working Paper Series No. 44, Available at SSRN: https://ssrn.com/abstract=3744357 or http://dx.doi.org/10.2139/ssrn.3744357

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Robert Vossebürger

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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