We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. Corporate tax rates are correlated with investment in manufacturing but not services, as well as with the size of the informal economy. The results are robust to the inclusion of many controls.* Djankov: The World Bank, 1818 H Street, Washington, DC 20433 (email: sdjankov@worldbank.org); Ganser: Department of Economics, Harvard University, Littauer Center, 1805 Cambridge Street, Cambridge, MA 02138 (email: tganser@fas.harvard.edu); McLiesh: The World Bank, 1818 H Street, Washington, DC 20433 (email: cmcliesh@gmail.com); Ramalho: The World Bank, 1818 H Street, Washington, DC 20433 (email: RRamalho@ifc.org); Shleifer: Department of Economics, Harvard University, Littauer Center M-9, Cambridge, MA 02138 and NBER (email: ashleifer@harvard.edu). We are grateful to Mihir Desai for considerable help at the early stages of this project, to Fritz Foley and especially James Hines for help at the later stages, and to Joel Slemrod for extensive comments. We are grateful to Kevin Hassett and Aparna Mathur for sharing their data and helping us understand the differences between their and our tax variables. We are also grateful to Robert Barro, Bruce Bolnick, Raj Chetty, Laurence Kotlikoff, Rafael La Porta, Gregory Mankiw, James Poterba, Lawrence Summers, Matt Weinzierl, and three anonymous referees for helpful comments. Shleifer thanks the Kauffman Foundation for support of this research, and Nicholas Coleman for excellent research assistance. 1The effect of corporate taxes on investment and entrepreneurship is one of the central questions in both public finance and development. This effect matters not only for the evaluation and design of tax policy, but also for thinking about economic growth Generally speaking, this research finds adverse effects of corporate income taxes on investment, although studies offer different estimates of magnitudes.In this paper, we present new cross-country evidence on the effects of corporate taxes on investment and entrepreneurship. The evidence comes from a newly constructed data base of corporate income tax rates for 85 countries in 2004. We seek to contribute to the literature in four ways.First, we use new data for a large cross-section of countries. Most cross-country studies focus on either some or all of the OECD countries (see especially King and Fullerton 1984, Devereux, Griffith, and Klemm 2002and Devereux and Griffith 2003 Competitiveness Report estimates of the size of the informal sector. We then assess the impact of corporate taxes on investment in manufacturing and services separately, as well as on the size of the informal economy.Research in public finance has developed...

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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