Corporate Tax Stimulus and Investment in Colombia
Peer Reviewed
Date issued
Apr 2010
Subject
Investment;
Fiscal Policy
JEL code
E22 - Investment • Capital • Intangible Capital • Capacity;
H2 - Taxation, Subsidies, and Revenue;
H20 - Taxation, Subsidies, and Revenue: General;
H21 - Efficiency • Optimal Taxation;
H22 - Incidence;
H23 - Externalities • Redistributive Effects • Environmental Taxes and Subsidies;
H24 - Personal Income and Other Nonbusiness Taxes and Subsidies;
H25 - Business Taxes and Subsidies;
H26 - Tax Evasion and Avoidance;
H27 - Other Sources of Revenue;
H29 - Taxation, Subsidies, and Revenue: Other;
O54 - Latin America • Caribbean
Country
Colombia
Category
Working Papers
This paper uses a yearly dataset of plant-level investment in Colombian firms during the period 1997 to 2007 to assess the impact of a tax incentive for firms that invest in fixed assets implemented in 2004. A positive and statistically significant correlation is found between the boom observed in investment and the adoption of the tax policy. However, the correlation vanishes when year-specific effects are controlled for. This result is robust to changes in the empirical specification, changes in estimation techniques, the inclusion of additional controls, and changes in the data set, among other tests. Overall, it is concluded that the tax stimulus analyzed was ineffective in promoting investment in Colombia.
