Year of Publication
Martin School of Public Policy and Administration
Master of Public Administration
Dr. JS Butler
The President of the Republic of Korea, Moon Jae-in reformed corporate tax, which is the new establishment of the highest bracket affecting on only companies with 300 billion won or more of sales. However, it caused a great controversy in Korea. The conservative argues that lowering corporate tax rate will improve corporate competitiveness while the progressive says that corporate taxes are neutral in corporate investment decisions.
According to an economic model, the amount of an entity's investment is determined by costs and returns when an additional unit of capital is used. Assuming taxes are raised with depreciation and deductions, it is not clear whether the amount of corporate investment will increase or decrease. Also, empirical studies conducted by various researchers and Research Institutes show results supporting both conflicting groups' arguments.
Therefore, it is necessary to conduct a clear analysis of whether an increase in corporate taxes reduces or does not have a significant impact on a company's investment. I conducted the “Difference in Difference” (DinD) by using the data from 2014 to 2020 of "Corporate Investment Plan Survey" (CIPS). To make causal inference, I need to distinguish between the treatment, companies with 300 billion won or more of sales, and the control groups, companies with sales below 300 billion won and to compare the effects of these two groups.
The treatment group reduced its investment while during the same period, the control group also declined. When it comes to estimate the DinD results, corporate tax increase cause to drive up the investment by 111,154 million won. In addition, the coefficients sign of corporate tax rate is positive on the corporates’ investment, and the magnitude is about 110,773.2. And the p-value, 0.065 is larger than the common α level of 0.05, which indicates that the effect of corporate tax rate on the corporates’ investment is not statistically significant. Therefore, the null hypothesis, the raising corporate tax rate will not reduce corporate investment, is not rejected.
Lee, Hyoungchul, "The impact of Corporate Tax on Investment in South Korea" (2021). MPA/MPP/MPFM Capstone Projects. 360.