No. 44: The role of personal income taxes in corporate investment decisions

Abstract

This paper examines the role of personal income taxes in corporate investment decisions. Since personal income taxes increase the cost of labor, firms’ investment decisions can be affected because of the inevitable link of production input factors. Using data on personal income taxes in 30 European countries and a large sample of private firms, we find that personal income taxes substantially reduce investment. The magnitude is comparable to the effect of corporate and value-added taxes. The effect is stronger for low-income earners vis-à-vis high-income earners and for firms with a stronger link between capital and labor input.

Beteiligte Institutionen

Die Hauptstandorte vom TRR 266 sind die Universität Paderborn (Sprecherhochschule), die HU Berlin und die Universität Mannheim. Alle drei Standorte sind seit vielen Jahren Zentren für Rechnungswesen- und Steuerforschung. Hinzu kommen Wissenschaftler der LMU München, der Frankfurt School of Finance and Management, der WHU – Otto Beisheim School of Management, der ESMT Berlin und der Goethe-Universität Frankfurt, die die gleiche Forschungsagenda verfolgen.