EconPapers    
Economics at your fingertips  
 

Corporate Tax Cuts for Small Firms: What Do Firms Do?

Wei Cui, Mengying Wei, Weisi Xie and Jing Xing

No 9389, CESifo Working Paper Series from CESifo

Abstract: What do small firms do when given an income tax cut? We address this question by examining the consequences of a sharp reduction in the corporate income tax rate for small- and micro-profit enterprises (SMPE) in China based on confidential tax returns. Utilizing the gradual increases in the qualifying threshold for SMPEs during 2010-2016, we find that newly qualified SMPEs with positive taxable income increased investment, interest expense and productivity. SMPEs in taxable losses did not respond to the tax cut. The tax cut induced more SMPEs to register, especially those in financially constrained sectors. Despite these positive effects, firms’ fixed asset growth slows down when they get closer to the SMPE threshold. Our study contributes to understanding the effect of tax preferences for small businesses.

Keywords: tax incentives; small firms; productivity; investment; firm entry (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cna, nep-ent, nep-pbe, nep-pub and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp9389.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9389

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

 
Page updated 2022-09-28
Handle: RePEc:ces:ceswps:_9389