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Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland

Sergio Galletta () and Agustin Redonda ()

International Tax and Public Finance, 2017, vol. 24, issue 6, No 2, 962-996

Abstract: Abstract This paper focuses on the effects of a corporate income flat tax reform on businesses’ investment decisions. Since 1990, several Swiss states (cantons) have been switching from a graduated to a flat tax rate scheme on profits. The paper assesses the effects of such a reform both on the number of establishments (i.e. extensive margin of investment) and on the number of employees (i.e. intensive margin) in a given jurisdiction by computing a difference-in-differences estimation. Our results suggest that the introduction of a flat tax reform on corporate income taxes has a negative and statistically significant impact on both margins of investment. Moreover, the effect is considerably larger for riskier firms, suggesting that progressive taxation acts as an insurance effect for risk-averse entrepreneurs.

Keywords: Corporate taxes; Flat tax; Tax reform; Progressive taxation (search for similar items in EconPapers)
JEL-codes: H25 H32 H71 R3 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10797-017-9446-3

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