Taxation And Corporate Performance: Less Is More

This paper is focusing on how different forms of tax effect the performance of individual companies, the whole economy, and the total tax income of the government. We test fixed, sales-linked and profit taxes under changing circumstances: first we will examine the effect of taxes when the growth rate and the uncertainty is zero, then we will take growth opportunities into account, finally we add uncertainty, too. The main result of this paper are the following. (1) Not only total tax amount but also the form of tax matters. Different types of taxes will influence the business activity in various ways. (2) The extremes are not the best choice: there could be one optimum level of taxation. (3) Increase of nominally fixed taxes near the maximal sustainable level should be lower than the expected growth of the economy; and (4) too high tax burden is more harmful in less stable countries.