Reducing corporate tax does not automatically lead to investments – Hufvudstadsbladet

Over the past decade or so, Finland, like many other Western countries, has reduced corporate tax in the hope of attracting new investment and greater economic growth.

In 2012, the tax was reduced from 26.5 to 24 percent, and two years later to 20 percent.

Since then, votes have been raised in favor of reducing the percentage to the global minimum of 15 percent. The starting point was to compensate for the loss of tax revenues through the benefits that the assumed investments and increased growth should provide.

But according to researchers Jarko Harjo, Alyssa Koivisto and Thomas Matejka From the Tax Research Center (FIT) of the Academy of Finland Tax cuts are an ineffective way to encourage investment and growth.

In his studies They looked at the tax cuts in 2012 and 2014. They found that smaller, growth-oriented companies with limited financing opportunities benefited the most from the tax cuts. Their business grew somewhat faster than before, and they also increased their investments slightly.

Regarding investment, the tax cut has a greater impact on the cash reserves of small businesses. As for larger, more solvent companies with better financing capabilities, the effect is not significant.

According to researchers, a corporate tax reduction means an immediate reduction in tax revenue, but the loss is rarely recovered in the form of investment and economic growth.