Science and Research Seminar Announcement: Does a
Tax Exemption of Retained Profits Provide Investment Incentives? - Evidence
from Croatia 2013-2016"
On behalf of Research and Scholarship Committee we
are happy to invite you to join our next seminar delivered by Peter Schmidt on
the topic of "Does a Tax Exemption of Retained Profits Provide Investment
Incentives? - Evidence from Croatia 2013-2016"
Time: Friday, Apr 24, from 13:00 to 13:30
Connection: Zoom link https://rit.zoom.us/j/97679532312
Abstract:
We analyze a
Croatian tax exemption of retained profits (abbreviated TERP) that was in
effect from 2013 to 2016. Croatian corporations were allowed to deduct profits
of the previous year from the tax base if these profits were retained and added
to the company’s subscribed capital. This regulation was intended to create a
lock-in effect and to stimulate investment and employment. We use firm-level
data from 6,458 Croatian firms as the treatment group against a control group
of 3,025 Slovenian firms, with a total of 85,347 observations, to investigate
whether firms did use TERP and whether the desired investment and employment
effects actually occurred.
We find that
Croatian firms significantly increased their subscribed capital after the
introduction of TERP. Further, the increase of subscribed capital varies
substantially between different owner types. The most obvious reactions are
observed for firms held by a single individual shareholder. Croatian firms that
increased their subscribed capital also significantly increased investment in
fixed assets, but only after a time lag of two years. Similarly,
capital-increasing firms significantly do increase employment. Our results
contribute to the knowledge on the effects of investment incentives. Based on
our results, we conjecture that TERP tends to be effective, but inefficient
device for stimulating investment.
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