Capital Gains Taxes and Real Corporate Investment: Evidence from Korea
American Economic Review · 2022 · Volume 112 · Issue 8
Abstract
This paper assesses the effects of capital gains taxes on investment in the Republic of Korea (hereafter, Korea), where capital gains tax rates vary at the firm level by firm size. Following a reform in 2014, firms with a tax cut increased investment by 34 log points and issued more equity by 9 cents per dollar of lagged revenue, relative to unaffected firms. Additionally, the effects were larger for firms that appeared more cash constrained or went public after the reform. Taken together, these findings are consistent with the "traditional view" predicting that lower payout taxes spur equity-financed investment by increasing marginal returns on investment.
Keywords
Intertemporal Firm Choice: Investment, Capacity, and Financing, Capital Budgeting, Fixed Investment and Inventory Studies, Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill, Business Taxes and Subsidies including sales and value-added (VAT), Fiscal Policies and Behavior of Economic Agents: Firm, Firm Performance: Size, Diversification, and Scope
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