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Do Corporate Taxes Reduce Productivity and Investment at the Firm Level? Cross-Country Evidence from the Amadeus Dataset

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  • Jens Arnold
  • Cyrille Schwellnus

Abstract

This paper uses a stratified sample of firms across OECD economies over the period 1996-2004 to analyse the effects of corporate taxes on productivity and investment. Applying a differences-in-differences estimation strategy which exploits differential effects of corporate taxes on firms with different profitability, it is found that corporate taxes have a negative effect on productivity at the firm level. The effect is negative across firms of different size and age classes except for the small and young, which may be attributable to the relatively low profitability of small and young firms. The negative effect of corporate taxes is particularly pronounced for firms that are catching up with the technological frontier. In the investment analysis, the results suggest that corporate taxes reduce investment through an increase in the user cost of capital. This may partly explain the negative productivity effects of corporate taxes if new capital goods embody technological change.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2008-19.

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Date of creation: Sep 2008
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Handle: RePEc:cii:cepidt:2008-19

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Keywords: Productivity; Growth; Corporate income tax; Firm level data; Fiscal policy;

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Cited by:
  1. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 11/701, Ghent University, Faculty of Economics and Business Administration.
  2. Norman Gemmel & Richard Kneller & Danny McGowan & Ismael Sanz, 2013. "Corporate Taxation and Productivity Catch-Up: Evidence from European Firms," Working Papers 13001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  3. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, OECD Publishing, vol. 2011(1), pages 1-44.
  4. Jens Matthias Arnold & Bert Brys & Christopher Heady & Åsa Johansson & Cyrille Schwellnus & Laura Vartia, 2011. "Tax Policy for Economic Recovery and Growth," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(550), pages F59-F80, February.
  5. Anne Lauringson, 2011. "Unemployment Benefits In A Period Of Crisis: The Effect On Unemployment Duration," University of Tartu - Faculty of Economics and Business Administration Working Paper Series, Faculty of Economics and Business Administration, University of Tartu (Estonia) 82, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  6. Raza, Syed Ali & Ali, Syed Adeel & Abassi, Zia, 2011. "Effect of corporate income tax and firms’ size on investment: evidence by Karachi stock exchange," MPRA Paper 36800, University Library of Munich, Germany.
  7. Norman Gemmell & Richard Kneller & Danny McGowan & Ismael Sanz, . "Corporate Taxation and Productivity Catch-Up: Evidence from 11 European Countries," Discussion Papers, University of Nottingham, School of Economics 12/06, University of Nottingham, School of Economics.
  8. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
  9. Kneller, Richard & Misch, Florian, 2013. "The effects of public spending composition on firm productivity," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-014, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Dackehag , Margareta & Hansson, Åsa, 2012. "Taxation of Income and Economic Growth: An Empirical Analysis of 25 Rich OECD Countries," Working Papers, Lund University, Department of Economics 2012:6, Lund University, Department of Economics.
  11. Jaan Masso & Jaanika Meriküll & Priit Vahter, 2011. "Gross profit taxation versus distributed profit taxation and firm perfomance : effects of Estonia,s corporate income tax reform," Bank of Estonia Working Papers, Bank of Estonia wp2011-02, Bank of Estonia, revised 27 Apr 2011.
  12. Masso, Jaan & Meriküll, Jaanika & Vahter, Priit, 2013. "Shift from gross profit taxation to distributed profit taxation: Are there effects on firms?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1092-1105.
  13. Stefan Parys & Sebastian James, 2010. "The effectiveness of tax incentives in attracting investment: panel data evidence from the CFA Franc zone," International Tax and Public Finance, Springer, Springer, vol. 17(4), pages 400-429, August.
  14. Boris Cournède & Antoine Goujard & Álvaro Pina, 2013. "How to Achieve Growth- and Equity-friendly Fiscal Consolidation?: A Proposed Methodology for Instrument Choice with an Illustrative Application to OECD Countries," OECD Economics Department Working Papers 1088, OECD Publishing.
  15. repec:hal:cesptp:hal-00959389 is not listed on IDEAS

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