Do corporate tax cuts stimulate real investment? Evidence from large public Swedish firms
Luoma, Veini (2026)
2026
Kauppatieteiden maisteriohjelma - Master's Programme in Business Studies
Johtamisen ja talouden tiedekunta - Faculty of Management and Business
Hyväksymispäivämäärä
2026-03-12
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tuni-202603113165
https://urn.fi/URN:NBN:fi:tuni-202603113165
Tiivistelmä
This thesis examines the effect of a 1.7-percentage-point reduction in Sweden’s statutory corporate income tax rate, implemented in January 2009, on the investment behaviour of large publicly listed Swedish firms. Understanding how firms respond to changes in the user cost of capital is central to the design of efficient corporate tax policy, especially when addressing distortions caused by taxes. Using firm-level financial statement data from LSEG Workspace, I analyse investment per lagged productive capital and changes in employment compensation, which capture variation in firms’ total wage bill.
The empirical strategy employs a difference-in-differences framework comparing Swedish firms to similar Norwegian firms that were not affected by the reform. Identification relies on the parallel trends assumption. Selection of Norway as a control is motivated by long-standing alignment of tax rates at 28 percent prior to 2009, followed by an unexpected reduction in Sweden that created exogenous variation in tax exposure between otherwise comparable firms.
The results indicate that Swedish firms increased investment by approximately 4.8 cents per euro of lagged productive capital, declining to 3.7 cents after controlling for firm-level characteristics. Employment compensation rises by 5.3–7.3 percent relative to preceding two-year average, primarily driven by increased hiring rather than higher wages. The estimated responses are substantial relative to existing literature, suggesting that reductions in corporate taxes can meaningfully stimulate large-firm investment during economic downturns. These findings provide first European evidence on the investment effects of corporate tax cuts among large publicly listed firms.
The empirical strategy employs a difference-in-differences framework comparing Swedish firms to similar Norwegian firms that were not affected by the reform. Identification relies on the parallel trends assumption. Selection of Norway as a control is motivated by long-standing alignment of tax rates at 28 percent prior to 2009, followed by an unexpected reduction in Sweden that created exogenous variation in tax exposure between otherwise comparable firms.
The results indicate that Swedish firms increased investment by approximately 4.8 cents per euro of lagged productive capital, declining to 3.7 cents after controlling for firm-level characteristics. Employment compensation rises by 5.3–7.3 percent relative to preceding two-year average, primarily driven by increased hiring rather than higher wages. The estimated responses are substantial relative to existing literature, suggesting that reductions in corporate taxes can meaningfully stimulate large-firm investment during economic downturns. These findings provide first European evidence on the investment effects of corporate tax cuts among large publicly listed firms.