CORPORATION TAX ASYMMETRIES AND INVESTMENT - EVIDENCE FROM UK PANEL-DATA

Theoretical work has emphasised the potentially powerful impact of cor poration tax asymmetries on investment behaviour, but empirical work h as mainly been confined to the measurement of effective tax rates. Thi s paper uses panel data from 597 U.K. companies to ask: Are tax asymme tries important to understanding observed investment behaviour? An opt imising investment model is developed and estimated both as a Q equati on and a Euler equation in which the cost of capital appears. Careful modelling of asymmetries does not noticeably improve the empirical per formance of these equations. Possible explanations are discussed.