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Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland

Author

Listed:
  • Sergio Galletta

    (University of Lugano
    University of Barcelona)

  • Agustin Redonda

    (Council on Economic Policies (CEP))

Abstract

This paper focuses on the effects of a corporate income flat tax reform on businesses’ investment decisions. Since 1990, several Swiss states (cantons) have been switching from a graduated to a flat tax rate scheme on profits. The paper assesses the effects of such a reform both on the number of establishments (i.e. extensive margin of investment) and on the number of employees (i.e. intensive margin) in a given jurisdiction by computing a difference-in-differences estimation. Our results suggest that the introduction of a flat tax reform on corporate income taxes has a negative and statistically significant impact on both margins of investment. Moreover, the effect is considerably larger for riskier firms, suggesting that progressive taxation acts as an insurance effect for risk-averse entrepreneurs.

Suggested Citation

  • Sergio Galletta & Agustin Redonda, 2017. "Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 962-996, December.
    • Handle: RePEc:kap:itaxpf:v:24:y:2017:i:6:d:10.1007_s10797-017-9446-3
    DOI: 10.1007/s10797-017-9446-3
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    More about this item

    Keywords

    Corporate taxes; Flat tax; Tax reform; Progressive taxation;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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