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Corporate tax, firm destruction and capital stock accumulation: Evidence from Chilean plants

Author

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  • Rodrigo Cerda; Diego Saravia.

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

  • Diego Saravia.

Abstract

We investigate the impact of corporate taxation on capital stock. In the paper, we indicate that corporate taxation might not only distort the decision of each firm to invest but could also destroy firms. With this in mind, we estimate capital demand equations, correcting for self-selection in the decision to produce by using the Heckman-Lee method and its panel data counterpart (Kyriadizou method). We use Chilean plant-level data , which is a period with large variability in corporate taxation. We find that corporate taxation has a considerable impact on the creation-destruction of firms and in addition, it also has an important impact on the decision of how much to invest for firms that are already involved in production.

Suggested Citation

  • Rodrigo Cerda; Diego Saravia. & Diego Saravia., 2009. "Corporate tax, firm destruction and capital stock accumulation: Evidence from Chilean plants," Documentos de Trabajo 364, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:364
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-364.pdf
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    References listed on IDEAS

    as
    1. Holger Görg & Eric Strobl, 2016. "Multinational Companies, Technology Spillovers and Plant Survival," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 16, pages 289-303, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Juan A. Correa & Miguel Lorca & Francisco Parro, 2019. "Capital–Skill Complementarity: Does Capital Composition Matter?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 89-116, January.
    2. Correa, Juan & Lorca, Miguel & Parro, Francisco, 2015. "Measuring the Impact of Financial Taxation on Capital," MPRA Paper 64378, University Library of Munich, Germany.
    3. Correa, Juan & Lorca, Miguel & Parro, Francisco, 2014. "Capital-Skill Complementarity: Does capital disaggregation matter?," MPRA Paper 61285, University Library of Munich, Germany.
    4. Rosario Aldunate, 2021. "Financial Constraints: a Propagation Mechanism of Foreign Shocks," Working Papers Central Bank of Chile 897, Central Bank of Chile.

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    More about this item

    Keywords

    Corporate taxation; capital stock;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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