Corporate Taxation and Investment: Evidence from the Belgian ACE Reform

Nils aus dem Moore

No 534, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: We contribute to the empirical literature on the relationship between corporate taxes and investment. We exploit the introduction of the so-called ACE corporate tax reform in Belgium that came into effect in January 2006 to evaluate this relationship in a quasiexperimental setting based on firm-level accounting data. To identify the causal effect of the reform on capital spending of Belgian corporations, we focus on the indirect effect of taxes on investment via their impact on free cash-flow. We use the systematic variation of the cash-flow sensitivity of investment between small and medium versus large firms to form treatment and control groups for difference-in-differences (DiD) estimations. Our benchmark results provide highly significant and robust estimates that correspond to an increase in investment activity by small and medium-sized firms of about 3 percent in response to the ACE reform. We substantiate the robustness of our results by means of triple differences estimations (DDD) that use a matched sample of French companies as an additional dimension of contrast.

Keywords: corporate income taxation; investment; capital budgeting; allowance for corporate equity; difference-in-differences (search for similar items in EconPapers)
JEL-codes: G31 G38 H22 H25 H32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-acc and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Corporate Taxation and Investment Evidence from the Belgian ACE Reform (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:534

DOI: 10.4419/86788611

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