Corporate taxation and firm-level investment in South Africa

Mashekwa Maboshe ()
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Mashekwa Maboshe: University of Cape Town

No 53, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: This paper investigates the responsiveness of firm-level investment to corporate tax changes in South Africa over the period 1999 to 2012. The study exploits rare changes in corporate tax policy to assess the responsiveness of firm-level investment among Johannesburg Stock Exchange listed non-financial firms. Our estimation of a neoclassical investment model using GMM techniques shows that although changes in corporate tax policy reduced the tax-adjusted marginal cost of capital over time, the reductions did not translate into significant investments in fixed assets. We speculate that the well-documented financial frictions in the capital markets could explain the failure of neoclassical investment theory in South Africa. Our findings are similar to those in other developing countries and crucially suggest that investment policies should look be[1]yond the use of corporate tax incentives.

Keywords: corporate taxation; capital investment; user cost of capital (search for similar items in EconPapers)
JEL-codes: C23 D22 E22 F14 H32 L25 O12 O32 O55 (search for similar items in EconPapers)
Date: 2024-09
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Published in ERSA Working Paper Series, September 2024

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Persistent link: https://EconPapers.repec.org/RePEc:rza:ersawp:53

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