Real Effects of Corporate Taxation: A Review

Forthcoming in the European Accounting Review

TRR 266 Accounting for Transparency Working Paper Series No. 50

46 Pages Posted: 10 May 2021 Last revised: 26 May 2021

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Date Written: May 6, 2021

Abstract

In this study, I review the empirical literature on the real effects of corporate taxation. I define real effects broadly as firms’ investment responses, corporate risk taking, capital structure choices, and aggregate outcomes such as GDP growth. I base my analysis on 79 empirical studies on the investment effects of corporate taxation and contrast these results to theoretical predictions. Consistent with theory, there seems to be a consensus that higher corporate tax rates reduce corporate investment, foreign direct investment (FDI), aggregate growth, and innovation. Similarly, many papers examine bonus depreciation, which consistently increases investment. At the same time, there is little evidence on the employment effects of corporate taxes and on the role of several tax base elements in shaping investments. Importantly, the role of tax avoidance (opportunities) in the tax effect on investment has received very little attention from the empirical literature over the past two decades. I also derive several other potential avenues for future research.

Keywords: Corporate taxation, literature review, real effects, investments, employment, tax avoidance

JEL Classification: M48, M41, H25, H26

Suggested Citation

Jacob, Martin, Real Effects of Corporate Taxation: A Review (May 6, 2021). Forthcoming in the European Accounting Review , TRR 266 Accounting for Transparency Working Paper Series No. 50, Available at SSRN: https://ssrn.com/abstract=3840940 or http://dx.doi.org/10.2139/ssrn.3840940

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
150
Abstract Views
434
rank
240,092
PlumX Metrics