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

Norman Gemmell, Richard Kneller, Danny McGowan, Ismael Sanz and José F. Sanz-Sanz

No 18770, Working Paper Series from Victoria University of Wellington, Chair in Public Finance

Abstract: Firms that lie 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 underinvest in their productivity. In this paper we explore how far higher rates of corporate taxation affect firm productivity convergence by reducing 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 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)
Date: 2013
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https://ir.wgtn.ac.nz/handle/123456789/18770

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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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcpf:18770

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