The effect of corporate taxes on investment and entrepreneurship (draft paper)

Authors: Simeon Djankov, Tim Ganser, Caralee McLiesh, Rita Ramalho, Andrei Shleifer
Source: The World Bank, January 2008

We present new data on effective corporate income tax rates in 85 countries in 2004 from a survey of all taxes imposed on “the same” standardized mid-size domestic firm. In this cross-section, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. A 10 percent increase in the effective corporate tax rate reduces the aggregate investment-to-GDP ratio by 2 percentage points. Corporate tax rates are negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of several controls.

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