TAX REFORMS AND INVESTMENT - A CROSS-COUNTRY COMPARISON

We use firm-level panel data to explore the extent to which fixed inve stment responds to tax reforms in 14 OECD countries. Previous studies have often found that investment does not respond to changes in the ma rginal cost of investment. We identify some of the factors responsible for this finding, and employ an estimation procedure that sidesteps t he most important of them. In so doing, we find evidence of statistica lly and economically significant investment responses to tax changes i n 12 of the 14 countries.