Taxing Big Firms' Extra Profits: Evidence from the "Robin Hood" Tax

In extraordinary times, policy makers need to find new ways to finance public expenditures and restore public budgets. Taxing who benefit from the extraordinary time would be the easy way, but the threat of negative trickle-down responses often make policy makers reluctant to go along this road. This paper studies how big corporations respond to tax hikes in extraordinary times. We leverage variations from the “Robin Hood†tax: a large surcharge applying to Italian firms operating in the energy sector with revenues above a discrete threshold. After showing that firms did not game the law by manipulating their revenues, our regression discontinuity estimates provide compelling evidence that the tax did not hurt in vestments nor profits, and that the tax burden is not shifted to workers. Moreover, our results are confirmed by the additional analysis we run using a difference in difference approach.