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The Tax-Elasticity of Tangible Fixed Assets: Heterogeneous Effects of Homogeneous Tax Policy Changes

Author

Listed:
  • Sean Mc Auliffe
  • Georg U. Thunecke
  • Georg Wamser

Abstract

This paper develops a new approach to calculate country-industry-year-specific forward- looking effective tax rates (FLETRs) based on a panel of 19 industries, 221 countries, and the years 2001 to 2020. Besides statutory corporate tax rate and tax base determinants, the FLETRs account for typical country-industry-specific financing structures as well as asset compositions. We show that FLETRs suffer from significant measurement error when the latter information is neglected, owing primarily to inappropriately assigned asset weights to statutory depreciation allowances. Our empirical analysis exploits the substantial variation in FLETRs over time to provide estimates of the tax semi-elasticity of corporate investment in tangible fixed assets. Based on more than 24 million firm-entity observations, our results suggest a statistically significant tax semi-elasticity of -0.41, which is at the lower end of previous findings. We further show that different subgroups of firms respond very heterogeneously to tax incentives.

Suggested Citation

  • Sean Mc Auliffe & Georg U. Thunecke & Georg Wamser, 2023. "The Tax-Elasticity of Tangible Fixed Assets: Heterogeneous Effects of Homogeneous Tax Policy Changes," Working Papers tax-mpg-rps-2023-25, Max Planck Institute for Tax Law and Public Finance.
    • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2023-25
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate taxation; depreciation allowances; effective marginal tax rates; investment responses; predictive mean matching;
    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
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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