Differential Corporate taxation and inter-asset investment distortions in South Africa

Mashekwa Maboshe ()
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Mashekwa Maboshe: University of Cape Town
Authors registered in the RePEc Author Service: Margaret Mabugu

No 51, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: South Africa has since the 1990’s actively reformed its corporate tax policy to stimulate investment in various assets and industries. While the investment impact of corporate taxation has been evaluated in various studies, no effort has been made to assess the potential inter-asset distortions due to differential taxation. Using a unique asset-industry level dataset, we find evidence of inter-asset distortions arising from differential taxation of assets and industries in South Africa. In particular, compared to a counterfactual benchmark where tax rates are equalized, we find that differential taxation induces under-investment in non-residential structures and computer equipment and over-investment in machinery and transportation equipment. The immediate policy implications are that ignoring distortions due to heterogeneous tax treatment could understate the efficiency and redistributive effects of tax policy in South Africa.

Keywords: user cost of capital; investment; distortions; South Africa (search for similar items in EconPapers)
JEL-codes: D22 E22 H25 O12 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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