This paper analyses how different tax policies can affect investment and productivity. To address this
question the paper uses industry-level data from a set of OECD countries and examines whether different
industries are affected differently by taxation. Investment is shown to respond negatively to an increase in
the corporate tax rate and a decrease in capital depreciation allowances through changes in the user cost of
capital. The analysis of potential links between taxes and productivity tests the hypothesis that taxes affect
productivity through different channels and that due to some salient industry characteristics some
industries are inherently more affected than others by certain taxes. The paper finds evidence that corporate
and top personal income taxes have a negative effect on productivity. In contrast, tax incentives for
research and development (R&D) are found to have a positive effect on productivity. These effects are
stronger in those industries that are inherently more profitable, have more entrepreneurial activity and are
more R&D intensive, respectively.
How do Taxes Affect Investment and Productivity?
An Industry-Level Analysis of OECD Countries
Working paper
OECD Economics Department Working Papers
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