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The Relationship between Economic Uncertainty and Corporate Tax Rates

Author

Listed:
  • Matthew W. Clance

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Giray Gozgor

    (Istanbul Medeniyet University, Turkey)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Chi Keung Marco Lau

    (University of Huddersfield, United Kingdom)

Abstract

This paper investigates the relationship between economic uncertainty and corporate tax rates in the panel dataset of 126 countries over the period 2003–2018. We use the new index so-called the “World Uncertainty Index” to measure the level of economic uncertainty. We utilise various estimation techniques and find that a one-way causality that runs from economic uncertainty to corporate tax rates. Specifically, a rise in economic uncertainty leads to higher corporate tax rates. We also discuss potential implications.

Suggested Citation

  • Matthew W. Clance & Giray Gozgor & Rangan Gupta & Chi Keung Marco Lau, 2019. "The Relationship between Economic Uncertainty and Corporate Tax Rates," Working Papers 201945, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201945
    as

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    References listed on IDEAS

    as
    1. Caldara, Dario & Fuentes-Albero, Cristina & Gilchrist, Simon & Zakrajšek, Egon, 2016. "The macroeconomic impact of financial and uncertainty shocks," European Economic Review, Elsevier, vol. 88(C), pages 185-207.
    2. Mehmet Balcilar & Rangan Gupta & Charl Jooste, 2017. "Long memory, economic policy uncertainty and forecasting US inflation: a Bayesian VARFIMA approach," Applied Economics, Taylor & Francis Journals, vol. 49(11), pages 1047-1054, March.
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    4. Kyle Handley & Nuno Limão, 2018. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 4, pages 89-122, World Scientific Publishing Co. Pte. Ltd..
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    6. Bekiros, Stelios & Gupta, Rangan & Majumdar, Anandamayee, 2016. "Incorporating economic policy uncertainty in US equity premium models: A nonlinear predictability analysis," Finance Research Letters, Elsevier, vol. 18(C), pages 291-296.
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    8. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, vol. 67(1), pages 45-84, February.
    9. Goodness C. Aye & Rangan Gupta & Chi Keung Marco Lau & Xin Sheng, 2019. "Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model," Applied Economics, Taylor & Francis Journals, vol. 51(33), pages 3624-3631, July.
    10. Dang, Dandan & Fang, Hongsheng & He, Minyuan, 2019. "Economic policy uncertainty, tax quotas and corporate tax burden: Evidence from China," China Economic Review, Elsevier, vol. 56(C), pages 1-1.
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    More about this item

    Keywords

    corporate taxation; economic uncertainty; uncertainty shocks; business cycles; panel data estimation techniques;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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