Malcolm Turnbull and Barack Obama

As Australia’s election campaign heats up, it seems that one of the central issues is likely to be a plan to cut the country’s corporate income tax from 30% to 25%. The argument in favour of this move is the same that proponents of corporate tax cuts make everywhere: it will cause companies to invest more money in Australia. This is great children’s story, but it has little basis in reality.

There actually is a great deal of research on this topic, and it finds very little relationship between corporate tax rates and investment. In the case of my country, the United States, the investment share of GDP peaked in the 1970s when corporations faced a 50% tax rate, considerably higher than the 35% rate they now face. Of course, since US corporations have become quite adept at avoiding taxes, their effective tax rate is close to 20%.