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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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  • Cyrille Schwellnus

    (OECD)

  • Jens Arnold

    (OECD)

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. Les impôts sur le revenu des sociétés réduisent-ils la productivité et l'investissement des firmes? Ce papier utilise un échantillon stratifié de firmes issues des pays de l’OCDE sur la période 1996-2004 pour analyser les effets de l’imposition des sociétés sur la productivité et l’investissement. En appliquant une stratégie d’estimation par différences-en-différences qui exploite des effets différentiels de l’imposition sur des firmes avec de différents niveaux de profitabilité, il s’avère que les impôts sur le revenu des sociétés ont un effet négatif sur la productivité des firmes. L’effet est négatif pour les firmes de toutes classes d’emploi et d’âge excepte pour les firmes à la fois petites et jeunes, ce qui peut être attribuable à la profitabilité relativement faible des firmes à la fois petites et jeunes. L’effet négatif de l’imposition est particulièrement fort pour les firmes qui sont en train de s’approcher à la frontière technologique. L’analyse de l’investissement indique que l’imposition des sociétés réduit l’investissement par une augmentation du coût du capital. Ceci expliquerait une partie des effets négatifs sur la productivité si les nouveaux biens de capital incorporent le progrès technologique.

Suggested Citation

  • Cyrille Schwellnus & Jens Arnold, 2008. "Do Corporate Taxes Reduce Productivity and Investment at the Firm Level?: Cross-Country Evidence from the Amadeus Dataset," OECD Economics Department Working Papers 641, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:641-en
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    File URL: http://dx.doi.org/10.1787/236246774048
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    References listed on IDEAS

    as
    1. Itzhak Zilcha & Rafael Eldor, 2004. "Firm's Output under Uncertainty and Asymmetric Taxation," Economica, London School of Economics and Political Science, vol. 71, pages 141-153, February.
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    Cited by:

    1. Richard Kneller & Florian Misch, 2014. "The Effects Of Public Spending Composition On Firm Productivity," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1525-1542, October.
    2. Oguzhan Akgun & Boris Cournède & Jean-Marc Fournier, 2017. "The effects of the tax mix on inequality and growth," OECD Economics Department Working Papers 1447, OECD Publishing.
    3. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-44.
    4. Amjad Ali & Marc Audi, 2018. "Macroeconomic Environment and Taxes Revenues in Pakistan: An Application of ARDL Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(1), pages 30-39, March.
    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 82, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    6. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    7. Jaan Masso & Jaanika Merikull & 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 wp2011-02, Bank of Estonia, revised 27 Apr 2011.
    8. 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, vol. 121(550), pages 59-80, February.
    9. 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.
    10. åsa Johansson & Christopher Heady & Jens Arnold & Bert Brys & Laura Vartia & Philip Spier, 2010. "Taxes and Firm Performance: Evidence from the OECD," Chapters,in: Tax Reform in Open Economies, chapter 2 Edward Elgar Publishing.
    11. Gemmell, Norman & Kneller, Richard & McGowan, Danny & Sanz, Ismael & Sanz-Sanz, José F., 2013. "Corporate Taxation and Productivity Catch-Up: Evidence from European firms," Working Paper Series 2705, Victoria University of Wellington, Chair in Public Finance.
    12. 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 11/701, Ghent University, Faculty of Economics and Business Administration.
    13. Norman Gemmell & Richard Kneller & Danny McGowan & Ismael Sanz, "undated". "Corporate Taxation and Productivity Catch-Up: Evidence from 11 European Countries," Discussion Papers 12/06, University of Nottingham, School of Economics.
    14. repec:mup:actaun:actaun_2016064051699 is not listed on IDEAS
    15. repec:hal:cesptp:hal-00959389 is not listed on IDEAS
    16. 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.
    17. 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.
    18. 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;International Institute of Public Finance, vol. 17(4), pages 400-429, August.
    19. Dackehag , Margareta & Hansson, Åsa, 2012. "Taxation of Income and Economic Growth: An Empirical Analysis of 25 Rich OECD Countries," Working Papers 2012:6, Lund University, Department of Economics.
    20. 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.

    More about this item

    Keywords

    croissance; fiscal policy; growth; politique fiscale; productivity; productivité;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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