Effect of Tax Cut on Investment: Evidence from Indian Manufacturing firms

Adam Hussain ()
Additional contact information
Adam Hussain: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Does a reduction in the corporate income tax rate trigger investments in developing countries? This paper answers this question in a difference in differences framework. Using firm-level data on Indian manufacturing firms. I study the effect of the 2019 and 2020 Indian tax reform that reduced the corporate income tax rate for domestic firms by 5%. I find that the reduction in corporate income tax led to a significant increase in the investments of domestic firms. The magnitude of the effect is found to be stronger for large domestic firms than the smaller ones. These results imply that the corporate income tax cuts can increase investment in developing countries and large domestic firms benefit more than small firms from a tax cut.

Keywords: Investment; Corporate tax; Indian manufacturing firms (search for similar items in EconPapers)
JEL-codes: G31 H25 H71 (search for similar items in EconPapers)
Pages: 19
Date: 2023-02
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-pbe and nep-pub
Note: Working Paper 390, 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.nipfp.org.in/media/medialibrary/2023/02/WP_390_2023.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:npf:wpaper:23/390

Access Statistics for this paper

More papers in Working Papers from National Institute of Public Finance and Policy
Bibliographic data for series maintained by S.Siva Chidambaram ( this e-mail address is bad, please contact ).