The role of personal income taxes in corporate investment decisions

Martin Jacob and Robert Vossebürger

Journal of Corporate Finance, 2022, vol. 77, issue C

Abstract: This paper examines the role of personal income taxes (PIT) in corporate investment decisions. Since PIT reduce consumption and increase cost of labor, investment decisions can be affected because of the inevitable link of production input factors. Using data on PIT in 27 European countries and three within-country approaches, we find that personal income taxes substantially reduce investment. The magnitude is comparable to the effect of corporate taxes. We also document that the PIT-investment relationship can be explained by increased labor costs and by reduced consumption due to higher PIT.

Keywords: Personal income taxation; Corporate investment (search for similar items in EconPapers)
JEL-codes: H25 H32 J23 J31 M54 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:77:y:2022:i:c:s0929119922001183

DOI: 10.1016/j.jcorpfin.2022.102275

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