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Measuring Firm-Level Productivity Convergence in the UK: The Role of Taxation and R&D Investment

Ioannis Bournakis, Sushanta Mallick (), David Kernohan and Dimitris Tsouknidis

No 45, Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research

Abstract: This paper examines the direct effects of corporate tax on firm productivity along with the interaction effects of tax policy and R&D activity on productivity at firm level for over 13,062 firms during 2004-2011. Our main findings are first, that there is evidence for productivity convergence and we find that there is a positive robust relationship between R&D and firm productivity, whereas tax policy has a negative distortionary effect on TFP. Second, firms with greater export orientation do not seem to achieve much improvement in productivity, whereas the favourable productivity effect in the case of R&D-based firms suggests that if there are tax incentives in place for R&D type activity, it can promote innovation and drive productivity convergence (lagging firms closing the technology gap with those at the frontier), particularly so when there is a continued decline in overall economic activity. The results also show a significant non-linear effect of tax rate on firm-level productivity, identifying an inverse U-shaped relationship

Keywords: Total Factor Productivity; Catch-Up; Effective Tax Rate; Firm-level Productivity Convergence; UK. (search for similar items in EconPapers)
JEL-codes: O3 O4 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cse, nep-eff, nep-ino, nep-pbe, nep-sbm and nep-tid
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Citations: View citations in EconPapers (2)

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