Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland |
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Authors: | Sergio Galletta Agustin Redonda |
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Institution: | 1.Institute of Economics (IdEP),University of Lugano,Lugano,Switzerland;2.Council on Economic Policies (CEP),Zurich,Switzerland;3.Barcelona Institute of Economics (IEB),University of Barcelona,Barcelona,Spain |
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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. |
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