Measuring the Impact of Financial Taxation on Capital

Correa, Juan and Lorca, Miguel and Parro, Francisco (2015): Measuring the Impact of Financial Taxation on Capital.

Abstract

Using panel data from Chilean manufacturing plants, we present an empirical model to measure the impact of a financial transaction tax on capital stock. Our results show a statistically significant negative effect of the tax on the stock of capital. We also find that the impact on plants is heterogeneous, depending on the intensity of different types of capital held by plants. Indeed, plants with a higher percentage of infrastructure assets, such as land and buildings, are affected relatively less by the tax.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial transaction tax, stock of capital, manufacturing industry
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General

References

Arellano, J. P. and V. Corbo (2013). Tributacion para el Desarrollo: estudios para la reforma del sistema chileno. Santiago: Centro de Estudios Publicos y Cieplan.

Auerbach, A. J. and R. H. Gordon (2002). Taxation of financial services under a VAT. American Economic Review 92 (2), 411-416.

Cerda, R. and F. Larrain (2010). Corporate taxes and the demand for labor and capital in developing countries. Small Business Economics 34 (2), 187-201.

Cerda, R. and D. Saravia (2009). Corporate tax, firm destruction and capital stock accumulation: Evidence from Chilean plants. Documento de Trabajo No. 364, Instituto de Economia, Pontificia Universidad Catolica de Chile.

Djankov, S., T. Ganser, C. McLiesh, R. Ramalho, and A. Shleifer (2010). The effect of corporate taxes on investment and entrepreneurship. American Economic Journal: Macroeconomics 2 (3), 31-64.

European Commission (2013). Special topics on the euro area economy. Assessing the economic impact of financial transaction taxes.

Grubert, H. and J. Mackie (2000). Must financial services be taxed under a consumption tax? National Tax Journal 53 (1), 23-40.

Hoffman, L. A., S. N. Poddar, and J. Whalley (1987). Taxation of banking services under a consumption type, destination basis VAT. National Tax Journal 40 (4), 547-554.

Hsieh, C.-T. and J. A. Parker (2007). Taxes and growth in a financially underdeveloped country: Evidence from the Chilean investment boom. Economia 8 (1), 1-40.

Isla, C. A. and C. F. Munoz (2009). Alcances de la eliminacion del impuesto de timbres y estampillas, y su reemplazo por el impuesto al valor agregado para los creditos de bancos e instituciones financieras. Tesis de Magister Universidad de Chile.

Jack, W. (2000). The treatment of financial services under a broad-based consumption tax. National Tax Journal 53 (4), 841-852.

Levinsohn, J. (1999). Employment responses to international liberalization in Chile. Journal of International Economics 47 (2), 321-344.

Levinsohn, J. and A. Petrin (2003). Estimating production functions using inputs to control for unobservables. Review of Economic Studies 70 (2), 317-341.

Liu, L. (1993). Entry-exit, learning, and productivity change evidence from Chile. Journal of Development Economics 42 (2), 217-242.

Matheson, T. (2011). Taxing financial transactions: Issues and evidence. International Monetary Fund working paper.

Merrill, P. and H. Adrion (1995). Treatment of financial services under consumption-based tax systems. Tax Notes 68 (September), 1496-1500.

Oulton, N. and S. Srinivasan (2003). Capital stocks, capital services, and depreciation: an integrated framework. Bank of England Working Paper No. 192.

Pavcnik, N. (2002). Trade liberalization, exit, and productivity improvement: Evidence from Chilean plants. Review of Economic Studies 69 (1), 245-276.

Quiggin, J. (1993). Taxation when borrowing is costly. Economic Record 69 (4), 416-427.

Staiger, D. and J. H. Stock (1997). Instrumental variables regression with weak instruments. Econometrica 65 (3), 557-586.

Tybout, J., J. de Melo, and V. Corbo (1991). The effects of trade reforms on scale and technical efficiency: New evidence from Chile. Journal of International Economics 31 (3-4), 231-250.

Whalley, J. (191). Taxation and the service sector. In R. Bird and J. Mintz (Eds.), Taxation to 2000 and Beyond, Canadian Tax Paper No. 93, Toronto, pp. 269-297. Canadian Tax Foundation.