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Measuring Firm-Level Productivity Convergence in the UK: The Role of Taxation and R&D Investment

  • Ioannis Bournakis
  • Sushanta Mallick
  • David Kernohan
  • Dimitris A.Tsouknidis

This paper examines the direct effects of corporate tax on firm productivity along with the interaction effects of tax policy and R&D activity on productivity at firm level for over 13,062 firms during 2004-2011. Our main findings are first, that there is evidence for productivity convergence and we find that there is a positive robust relationship between R&D and firm productivity, whereas tax policy has a negative distortionary effect on TFP. Second, firms with greater export orientation do not seem to achieve much improvement in productivity, whereas the favourable productivity effect in the case of R&D-based firms suggests that if there are tax incentives in place for R&D type activity, it can promote innovation and drive productivity convergence (lagging firms closing the technology gap with those at the frontier), particularly so when there is a continued decline in overall economic activity. The results also show a significant non-linear effect of tax rate on firm-level productivity, identifying an inverse U-shaped relationship

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Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 45.

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Date of creation: Nov 2013
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Handle: RePEc:cgs:wpaper:45
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