The investment decisions of companies can be influenced by the economic situation. In normal economic times, the share of companies that change their investment decisions downward in response to tax increases increases by 2 percentage points. This figure triples to over 6 percentage points during a recession. In the face of the forgone investments, 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, Peichl says.
The ifo Investment Survey, a representative survey of companies in Germany's manufacturing sector, is the basis for measuring corporate investment. The analysis is based on 1,436 business tax increases in 797 German municipalities spread over the period 1980 to 2018.
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