Impact Of Corporate Tax Reforms On Business Investment In BRICS Emerging Economies

Abstract

This study explores how corporate tax reforms influence business investment in BRICS emerging economies from 1991 to 2024, using gross fixed capital formation (GFCF) as a measure of investment. To capture both short-term adjustments and long-term relationships, the study applies the Panel Autoregressive Distributed Lag (PMG/ARDL) model, while also considering key factors such as trade openness, credit availability, inflation, and infrastructure. Preliminary tests confirm that the variables are suitable for this approach and that a long-run relationship exists among them. The findings show that corporate tax has a clear negative effect on investment in the long run. Specifically, a 1% increase in corporate tax reduces investment by about 0.56%, suggesting that higher taxes discourage firms from expanding. In contrast, trade openness supports investment, with a 1% increase leading to a 0.68% rise, highlighting the benefits of global market integration. Inflation is found to be particularly harmful, reducing investment by about 1.68%, as economic instability makes long-term planning difficult for businesses. Interestingly, infrastructure shows a negative effect, pointing to possible inefficiencies in how it is developed or managed. Credit also has a weak negative impact, suggesting that access to finance alone does not guarantee productive investment. In the short run, most factors do not have a strong effect, although the system adjusts quickly back to its long-run path. The study shows that tax reforms alone are not enough. A stable economic environment, better infrastructure, and effective financial systems are equally important for boosting investment.