Shift from gross profit taxation to distributed profit taxation: Are there effects on firms?

Jaan Masso (), Jaanika Meriküll and Priit Vahter

Journal of Comparative Economics, 2013, vol. 41, issue 4, 1092-1105

Abstract: This paper investigates the consequences of the corporate tax reform in Estonia in 2000. This unique reform nullified the taxation of retained earnings and maintained corporate income tax only on distributed profits. We investigate the outcome of the reform by comparing the performance of the affected firms in Estonia with that of firms from Latvia and Lithuania, the two other Baltic countries. We use firm-level financial data and the difference in differences approach for our analysis. The results are consistent with an increase in holdings of liquid assets and lower use of debt financing after the reform. A positive relationship of the reform with post-reform investment and productivity has also been found. The results point to a stronger effect on smaller firms.

Keywords: Capital structure; Comparative economic development; Corporate income tax; Investments; Liquidity (search for similar items in EconPapers)
JEL-codes: D22 H25 H32 O16 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:41:y:2013:i:4:p:1092-1105

DOI: 10.1016/j.jce.2013.01.011

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