Abstract
The paper assesses the role of taxes on investment in Colombian firms. The research takes advantage of the Colombian context of frequent tax reforms, at least one reform every three years, during the period 2005-2014, and a unique panel data set from financial statements and corporation tax returns at the firm level. The effect of corporate taxation on investment is estimated by first determining the impact of taxation on the user cost of capital by computing the marginal effective tax rates at the firm level. Then, we estimate the impact of the cost of capital on investment. Estimations indicate that the corporate income tax elasticity of investment is on average –0.2 for the analyzed period, which is in the lower range when compared to other studies for developed countries
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