Does the Corporate Income Tax Cut Promote Business Investment?: An Application of Tax-adjusted Tobin q Model

This paper is to investigate the effect of corporate income tax on business investment by using panel data of Korean companies between 1983 and 2022. This paper estimates tax term in the tax-adjusted q model before and after economic crisis. The tax term estimation between 1983 and 1997 shows that the effect of corporate income tax rate on investment was strong before Korean financial crisis. Corporate income tax cut promoted significantly business investment. The estimation between 1998 and 2010 after Korean financial crisis shows that corporate income tax cut promoted moderately business investment. But the estimation between 2011 and 2022 shows that the effect of corporate income tax rate on investment is insignificantly small. Corporate income tax cut promote barely business investment after global financial crisis in 2008. Empirical results in this paper provide the new perspective on the corporate income tax policy. The Effect of the corporate income tax cut policy on business investment decreases rapidly as tax rate decreases and tax rate cut reduces the effect of tax incentive policy, such as investment tax credit and depreciation savings on investment.