The role of personal income taxes in corporate investment decisions

Year: 2022

Type: Journal Publication

Journal: Journal of Corporate Finance

Abstract

This paper examines the role of personal income taxes (PIT) in corporate investment decisions. Since PIT reduce consumption and increase cost of labor, investment decisions can be affected because of the inevitable link of production input factors. Using data on PIT in 27 European countries and three within-country approaches, we find that personal income taxes substantially reduce investment. The magnitude is comparable to the effect of corporate taxes. We also document that the PIT-investment relationship can be explained by increased labor costs and by reduced consumption due to higher PIT.

Publication Information

TRR 266 researchers

Martin Jacob IESE Business School

Volume Number

DOI

DOI Link

To cite this article

Jacob, M., & Vossebürger, R. (2022). The role of personal income taxes in corporate investment decisions. Journal of Corporate Finance, 77. https://doi.org/10.1016/j.jcorpfin.2022.102275

Related Projects

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Investment Effects of Multidimensional Taxation

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Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne and Leibniz University Hannover who share the same research agenda.