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Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms
Author(s) -
Gemmell Norman,
Kneller Richard,
McGowan Danny,
Sanz Ismael,
SanzSanz José F.
Publication year - 2018
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12212
Subject(s) - economics , productivity , corporate tax , robustness (evolution) , monetary economics , exploit , convergence (economics) , value added tax , macroeconomics , tax avoidance , biochemistry , chemistry , computer security , computer science , gene
In this paper, we explore whether higher corporate tax rates, because they lower the after‐tax returns to productivity‐enhancing investments, reduce the speed with which small firms converge to the productivity frontier. Using data for 11 European countries, we find evidence that their productivity catch‐up is slower when the statutory corporate tax rates are higher. In contrast, we find that large firms are instead affected by effective marginal rates. Using the reduced‐form model of productivity convergence of Griffith et al . (2009, Journal of Regional Science 49 , 689–720), our results are robust to a host of robustness checks and a natural experiment that exploits the 2001 German tax reforms.