No. 83: Environmental taxes and corporate investment

Abstract

This paper examines the role of environmental taxes in corporate investment decisions. Using data on firms in Spain and leveraging an emission tax increase in 2013 in the autonomous Community Valenciana, we provide evidence that environmental taxes reduce investment. Surprisingly, this effect does not depend on the level of emissions, but rather on the degree to which firms bear the tax burden. Investments of firms with low capital supply elasticity or with higher customer or supplier demand elasticity are most affected by environmental taxes. We validate these insights using a sample of 26 European countries and variation in electricity taxes.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, ESMT Berlin, Goethe University Frankfurt and Carl von Ossietzky University Oldenburg who share the same research agenda.