You are invited to join the weekly Nuremberg Research Seminar in Economics on 14 January 2026, from 13.15 to 14.45 pm. The seminar will be held in room LG 0.423. Martin Jacob (IESE Business School) will be talking about “The VAT Trap: How Consumption Tax Hikes Make Firms Pay Out More and Invest Less”.
More information can be found here:
We examine how value-added tax (VAT) impacts corporate decisions using data from 54 countries. Contrary to standard economic theory, firms increase cash payouts after VAT hikes while reducing investment. Our theoretical model with overlapping generations explains this behavior: short-term oriented owners prioritize current consumption over future generations. Using an exogenous VAT shock, we find only firms with domestic owners (subject to VAT) raised dividends, while those with foreign owners (not subject to VAT) did not. Cross-country evidence confirms stronger payout effects in short-term oriented cultures. Our results show how consumption taxes can distort capital accumulation and hinder long-term growth.