Corporate Taxation and Productivity Catch-Up: Evidence from European Firms

Norman Gemmel, Richard Kneller, Danny McGowan () and Ismael Sanz
Additional contact information
Norman Gemmel: Victoria University of Wellington, New Zealand
Danny McGowan: Bangor University, UK

No 13001, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: Firms that lay far behind the technological frontier have the most to gain from imitating the technology or management practices of others. That some firms converge relatively slowly to the productivity frontier suggests the existence of factors that cause them to under-invest in their productivity. In this paper we explore whether higher rates of corporate taxation affect firm productivity convergence because they reduce the after tax returns to productivity enhancing investments for small firms. Using data for 11 European countries we find evidence for such an effect; productivity growth in small firms is slower the higher are high corporate tax rates. Our results are robust to the use of instrumental variable and panel data techniques with quantitatively similar effects found from a natural experiment following the German tax reforms in 2001.

Keywords: Productivity; taxation; convergence (search for similar items in EconPapers)
JEL-codes: D24 H25 L11 O31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-03
New Economics Papers: this item is included in nep-acc, nep-eff, nep-eur, nep-pbe, nep-pub, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://www.bangor.ac.uk/business/research/documents/BBSWP13001.pdf (application/pdf)

Related works:
Journal Article: Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms (2018)
Working Paper: Corporate Taxation and Productivity Catch-Up: Evidence from European firms (2013)
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