The Effects of Corporate Taxes on Small Firms

Jarkko Harju, Aliisa Koivisto and Tuomas Matikka

No 129, Working Papers from VATT Institute for Economic Research

Abstract: We study the impact of corporate taxes on firm-level investments, total output and input usage by exploiting a 4.5 percentage-point corporate tax rate cut in Finland in 2014. We use detailed administrative data and a differences-in-differences method comparing small corporations (tax rate cut) to similar partnerships (no change in tax incentives). We find no significant investment responses. However, we observe an increase in annual sales and variable costs, suggesting that corporate tax rates have an effect on business activity. The effects are driven by entrepreneurs who actively work in their firm, suggesting that the tax cut increased entrepreneurial effort.

Keywords: corporate taxation; investments; business activity; small firms; Social security; taxation and inequality; Business regulation and international economics; G31; G38; H21; H25; Elinkeinopolitiikka; Verotus (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-acc, nep-ent, nep-pbe, nep-pub and nep-sbm
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https://www.doria.fi/handle/10024/176600

Related works:
Journal Article: The effects of corporate taxes on small firms (2022)
Working Paper: The Effects of Corporate Taxes on Small Firms (2022)
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