Abstract

This paper analyses how corporate taxes can affect investment and productivity. To address this question the paper uses data from a set of 42 developing countries taken from the World Bank Business Environment Surveys and examines whether firms with different sizes are affected differently by taxation. We extend the analysis that has been carried out relating tax rates to investment into the analysis of the impact of taxation on total factor productivity. Investment and productivity are shown to respond negatively to an increase in the corporate tax rate. These effects are stronger in bigger firms.

Key words: Taxation, investment, total factor productivity.