 Homogeneous Profit Tax Effects for Heterogeneous Firms?The World Economy, 2010, vol. 33, issue 8, 1023-1041 Abstract: In most countries, profit taxation is probably much more relevant nowadays than trade liberalisation when it comes to firm‐level decisions about investment. Empirically, firms are quite heterogeneous with regard to fixed costs: the composition of assets (tangible versus intangible; machinery versus buildings; etc.) and the financing of investments. Then, even uniform changes in profit tax instruments cause heterogeneous responses of firm‐level effective tax rates and, hence, after‐tax profits. We argue that, with similar profit margins, firms would then require pre‐tax profits to differ as well. Governments change statutory profit tax rates and, by virtue of firms’ heterogeneity, they cause stark selection effects which are mainly related to heterogeneous fixed rather than variable costs. We compute costs of capital for a large sample of firms to illustrate how homogeneous changes in tax instruments hit firms differently. Using Bureau van Dijk’s ORBIS database, we illustrate that the effects of changes in statutory instruments have relatively large systematic variance components across industries within countries and also relatively large ones of firms within industries and countries. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:33:y:2010:i:8:p:1023-1041 Ordering information: This journal article can be ordered from Access Statistics for this article The World Economy is currently edited by David Greenaway More articles in The World Economy from Wiley Blackwell |
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