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wiiw Seminar in
International Economics |
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Do Corporate Taxes Affect Firm Productivity? Cross-country
Evidence from European Micro Data
Cyrille Schwellnus, OECD
(with Jens Arnold)
Friday, 22 January 2010, 4 p.m. |
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This paper
uses a stratified sample of firms across Western Europe over
the period 1996-2004 to test for the existence of a link between
corporate taxation and productivity. Corporate taxes may reduce
incentives for productivity-enhancing innovations by reducing
their post-tax returns, and may reduce incentives for risk taking
by firms. In addition, corporate taxes can increase the user
cost of capital and reduce incentives to invest in physical
capital, which may affect productivity through technological
progress embodied in new physical capital. Applying a differences-in-differences
estimation strategy that assumes differential effects of corporate
taxes across firms with different profitability, we find that
corporate taxes reduce 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.
Keywords: productivity, growth, tax structure, firm level data,
fiscal policy
JEL classifications: D21, D24, E22, E62, H25, H32 |
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