Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/156195
Authors: 
Jungmann, Hendrik
Loretz, Simon
Year of Publication: 
2016
Series/Report no.: 
Working Papers in Economics and Finance 2016-01
Abstract: 
This paper highlights the importance of different investment motives and to what extend they affect the responsiveness to corporate taxation. In particular, we discuss how to classify investment as non-related, horizontal, vertical and complex types using a combination of both firm-specific (ownership) information and sector-specific information from input-output tables. Hereby, we point out to what extend the resulting classification depends on assumptions made by researcher. Following this, we examine the effects of host-country corporate taxation on the volume of investment within related firms (i.e., the intensive margin). We are able to quantitatively replicate the average result in the empirical literature with an overall tax semi-elasticity of approximately -1.5. Taking into account firm-heterogeneity we find that non-related investments react stronger to corporate taxation whereas horizontal investments are less responsive, though, significant negative tax semi-elasticities turn out for the sub-set of manufacturing industries where horizontal investment is much more prevalent. As the strict categorical classification still yields ambiguous results for both vertical and complex investments we extend the methodology by defining shares of investment and make the point that, by and large, stronger business motives reduce the tax responsiveness of investment.
Subjects: 
Corporate Taxation
Investment Strategy
Panel Econometrics
JEL: 
C23
F23
H25
L25
Document Type: 
Working Paper

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