Corporate taxation and capital accumulation: evidence from \u85rm-level data

We estimate the long-run elasticity of the capital stock with respect to the user cost of capital using two \u85rm-level datasets from Amadeus, which cover 31,740 domestic independent \u85rms and 10, 666 subsidiaries of multinational companies in the manufacturing sector from 7 European countries over the period 1999-2007. Consistent with the results based on the industry-level data in Bond and Xing (2010), we \u85nd that capital intensity at the \u85rm level is strongly responsive to changes in the tax-adjusted user cost of capital. Our benchmark estimation results remain robust when we deal with short panel issues and the endogeneity of explanatory variables using the Generalised Methods of Moments estimator suggested by Arellano and Bond (1991). Our preliminary investigation suggests that \u85rms with di¤erent tax status may respond di¤erently to corporate tax incentives. Furthermore, using a sample of subsidiaries of multinational companies, we do not \u85nd multinational com-paniescapital intensity, conditional on their location choice of investment, responds to changes in corporate tax incentives in a di¤erent way