Capital Investment and Corporate Tax: Empirical investigation of recent tax reforms

We examine the effects of corporate tax cuts after 2008 on corporate capital investment. To do this, we estimate investment function based on tax-adjusted Q with cash flow and other control variables. Our empirical results first demonstrate that the corporate tax cuts stimulated capital investment through tax adjusted Q in many corporate tax reforms after the late 2000s. However, the coefficients of tax adjusted Q are well below one, meaning that the quantitative effects of the corporate tax cuts are not substantial. Our second finding is that the effects on capital investment are different depending on the characteristics of firms. We especially reveal that the positive effects are salient with respect to a group of high-growth firms. These results suggest that there are various effects of corporate tax cuts and policy makers should take the heterogeneity of firms into consideration when they craft corporate tax reforms.