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Do firms that pay less company tax create more jobs?

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  • Leigh, Andrew

Abstract

Using data for around 1000 profitable Australian firms, I explore the relationship between effective tax rates and job creation. On average, I find that the relationship is positive — meaning that firms which pay less tax tend to create fewer jobs. About one-third of firms have sufficient deductions and tax offsets to reduce their effective tax rate below 25 percent. On average, these firms shed jobs. By contrast, firms with an effective corporate tax rate above 25 percent created jobs at an average annual rate of 2 percent.

Suggested Citation

  • Leigh, Andrew, 2018. "Do firms that pay less company tax create more jobs?," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 25-28.
  • Handle: RePEc:eee:ecanpo:v:59:y:2018:i:c:p:25-28
    DOI: 10.1016/j.eap.2018.02.003
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    References listed on IDEAS

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    1. J.M. Dixon & J. Nassios, 2016. "Modelling the Impacts of a Cut to Company Tax in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-260, Victoria University, Centre of Policy Studies/IMPACT Centre.
    2. Richardson, Grant & Lanis, Roman, 2007. "Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia," Journal of Accounting and Public Policy, Elsevier, vol. 26(6), pages 689-704.
    3. Michael Kouparitsas & Dinar Prihardini & Alexander Beames, 2016. "Analysis of the long term effects of a company tax cut," Treasury Working Papers 2016-02, The Treasury, Australian Government, revised May 2016.
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    1. Davidson, Sinclair, 2018. "Comment: Do firms that pay less company tax create more jobs? Volume 59, September 2018, Pages 25–28," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 127-129.
    2. Leigh, Andrew, 2018. "Reply: Do firms that pay less company tax create more jobs?," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 113-115.

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    More about this item

    Keywords

    Corporate income tax; Employment;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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