2024/09/04 by Mashekwa Maboshe, Maboshe, Mashekwa
Business, Management and Accounting · Economics, Econometrics and Finance · #C23 #Corporate Finance and Governance #Corporate Taxation and Avoidance #E22 #Fiscal Policy and Economic Growth #H32 #capital investment #corporate taxation #user cost of capital
paper · doi:10.71587/0an9bq21
openalex publication_date 2024/09/04 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/01
This paper investigates the responsiveness of firm-level investment to corporate tax changes in South Africa over the period 1999 to 2012. The study exploits rare changes in corporate tax policy to assess the responsiveness of firm-level investment among Johannesburg Stock Exchange listed non-financial firms. Our estimation of a neoclassical investment model using GMM techniques shows that although changes in corporate tax policy reduced the tax-adjusted marginal cost of capital over time, the reductions did not translate into significant investments in fixed assets. We speculate that the well-documented financial frictions in the capital markets could explain the failure of neoclassical investment theory in South Africa. Our findings are similar to those in other developing countries and crucially suggest that investment policies should look be[1]yond the use of corporate tax incentives.