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The Effects of Corporate Taxes on Small Firms

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  • Jarkko Harju
  • Aliisa Koivisto
  • Tuomas Matikka

Abstract

We study the impact of corporate taxes on firm-level investments and business activity by exploiting a 6 percentage-point reduction in the corporate tax rate during 2012–2014 in Finland. We use detailed administrative data and a difference-in-differences method comparing small corporations (tax rate cuts) to similar partnerships (no change in taxes). We find no significant average investment responses but do observe an average increase in annual sales and variable costs. These effects are driven by more cash-constrained firms and firms where the main owner actively works in the firm.

Suggested Citation

  • Jarkko Harju & Aliisa Koivisto & Tuomas Matikka, 2022. "The Effects of Corporate Taxes on Small Firms," Working Papers 2234, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:2234
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    File URL: http://urn.fi/URN:ISBN:978-952-03-2273-1
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    Cited by:

    1. Lundberg, Jacob & Massenz, Gabriella, 2025. "Local Corporate Taxation and Business Activity," Working Paper Series 1531, Research Institute of Industrial Economics.
    2. Kristoffer Berg, 2025. "Taxing Corporate or Shareholder Income," CESifo Working Paper Series 12149, CESifo.
    3. Cui, Wei & Wei, Mengying & Xie, Weisi & Xing, Jing, 2025. "Corporate tax cuts for small firms: What do firms do?," Journal of Corporate Finance, Elsevier, vol. 91(C).
    4. Jonas Knaisch & Carla Pöschel, 2024. "Wage response to corporate income taxes: A meta‐regression analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 38(3), pages 852-876, July.
    5. Dustin L. Swonder & Damián Vergara, 2025. "A Sufficient Statistics Approach to Optimal Corporate Taxes," NBER Working Papers 34517, National Bureau of Economic Research, Inc.
    6. Corti Paul Lakuma & Rehema Kahunde, 2023. "Global minimum corporate income tax: Challenges and prospects for Uganda," WIDER Working Paper Series wp-2023-137, World Institute for Development Economic Research (UNU-WIDER).
    7. Michael Funke & Raphael Terasa, 2026. "Germany’s Swift Package of Business Tax Breaks Aimed at Stimulating Investment," CESifo Working Paper Series 12385, CESifo.
    8. Jarkko Harju & Toni Juuti & Tuomas Matikka, 2025. "Selection into Entrepreneurship, Income Mobility and Firm Performance," Working Papers 41, Finnish Centre of Excellence in Tax Systems Research.
    9. Aliisa Koivisto, 2025. "Tax planning and investment responses to dividend taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(2), pages 347-386, April.
    10. Holmberg, Johan & Selin, Håkan, 2025. "Firm-Level Responses to a Canceled Dividend Tax Increase," Umeå Economic Studies 1040, Umeå University, Department of Economics.
    11. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    12. Cali, Massimiliano & Presidente, Giorgio & De Gouvea Scot de Arruda, Thiago, 2025. "The Elusive Impact of Corporate Tax Incentives," Policy Research Working Paper Series 11061, The World Bank.
    13. Ana Martins & João Pereira dos Santos & Fernando Pozzobon, 2025. "Sailing through Troubled Waters: Evidence from the APOIAR Program," GEE Papers 190, Gabinete de Estratégia e Estudos, Ministério da Economia, revised May 2025.
    14. Segundo Camino‐Mogro, 2023. "Tax incentives, private investment and employment: Evidence from an Ecuadorian reform," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(7), pages 2129-2156, October.

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    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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