Corporate Taxation and Capital Accumulation

We present new empirical evidence that aggregate capital accumulation is strongly influenced by the user cost of capital and, in particular, by corporate tax incentives summarised in the tax-adjusted user cost. We use sectoral panel data for the USA, Japan, Australia and ten EU countries over the period 1982-2007. Our panel combines data on capital stocks, value-added and relative prices from the EU KLEMS database with measures of effective corporate tax rates from the Oxford University Centre for Business Taxation. Given the tax-adjusted user cost, we find little additional information in statutory corporate tax rates or effective average tax rates