Effect of Corporate Income Tax on Investment Decisions of Indian Manufacturing Firms

K. Sankarganesh () and K.R. Shanmugam
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K. Sankarganesh: Ph.D. Research Scholar, Madras School of Economics, Chennai

Working Papers from Madras School of Economics,Chennai,India

Abstract: This study is an attempt to empirically analyse the effect of corporate income tax on investment of manufacturing firms in India during 2005-2019, using the standard panel two way fixed effects model estimation techniques. It is found that the effective corporate tax has a negative and significant impact on the corporate investment. Moreover, the estimated effective tax elasticity is relatively low as compared to the magnitude found in other countries. Our analysis also indicates that the deduction rate has a positive impact on investment while interest-debt ratio and leverage ratio have a negative impact. The effective rate increases with age and size of firms. It is our hope that these results will be useful to policymakers and other stakeholders to take appropriate strategies to design the corporate tax policy such that it will not hinder business investment in India.

Keywords: Investment; Effect tax rate; Corporation income tax; panel data methods (search for similar items in EconPapers)
JEL-codes: C23 D21 E22 E51 H25 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2022-12
New Economics Papers: this item is included in nep-cfn
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Journal Article: Effect of corporate income tax on investment decisions of Indian manufacturing firms (2023)
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