The investment decisions of companies vary based on the economic situation. In normal economic times, the share of companies that adjust their investment decisions downward in response to tax increases increases by 2 percentage points. During a recession, this figure triples to over 6 percentage points. It would be particularly costly for policymakers to increase corporate tax rates as a way to stabilize tax revenue in turbulent economic times such as the current crisis, according to Peichl, because of the forgone investments.
A representative survey of companies in Germany's manufacturing sector is the basis for measuring corporate investment. The analysis was based on 1,436 business tax increases in 797 German municipalities spread over the period 1980 to 2018.
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