Corporate Taxation and Environmental Investment

• In Event: What are firms willing to do for a tax break?

Abstract

This paper studies the effect of corporate tax rate changes on firms’ investment in environmental protection. Using administrative survey data for German manufacturing firms, I exploit the large spatial and time variation in German local business tax rates. Staggered event study and difference-in-differences estimates show how corporate tax rate changes affect manufacturing firms’ investment in environmental protection and whether environmental investment is affected differently than other corporate investment. Furthermore, I study heterogeneous treatment effects to shed light on which market or firm characteristics mostly affect environmental investment. Finally, I estimate the environmental consequences of changing corporate tax rates to provide direct policy implications.

Author

• Inga Schulz, University of Mannheim