Corporate taxation and productivity catch-up: evidence from European firms

Gemmell, Norman; Kneller, Richard; McGowan, Danny; Sanz, Ismael; Sanz-Sanz, Jos� F.

Abstract

This paper explores whether higher corporate tax rates reduce the speed with which small firms converge to the productivity frontier by lowering the after-tax returns to productivity-enhancing investments. Using data for 11 European countries we find evidence that their productivity catch-up is slower the higher are statutory corporate tax rates. In contrast, we find large firms are instead affected by effective marginal rates. Using the reduced form model of productivity convergence due to Griffith et al. (2009) our results are robust to a host of robustness checks and a natural experiment that exploits the 2001 German tax reforms.

Citation

Gemmell, N., Kneller, R., McGowan, D., Sanz, I., & Sanz-Sanz, J. F. (in press). Corporate taxation and productivity catch-up: evidence from European firms. Scandinavian Journal of Economics, https://doi.org/10.1111/sjoe.12212

• Journal Article Type: Article
• Acceptance Date: Apr 21, 2016
• Online Publication Date: Jul 17, 2016
• Deposit Date: May 21, 2016
• Publicly Available Date: Jul 17, 2016
• Journal: Scandinavian Journal of Economics
• Print ISSN: 0347-0520
• Electronic ISSN: 1467-9442
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/sjoe.12212
• Keywords: Productivity; taxation; convergence
• Public URL: https://nottingham-repository.worktribe.com/output/800607
• Publisher URL: http://onlinelibrary.wiley.com/doi/10.1111/sjoe.12212/abstract
• Additional Information: This is the peer reviewed version of the following article: Gemmell, N., Kneller, R., McGowan, D., Sanz, I. and Sanz-Sanz, J. F. (2016), Corporate Taxation and Productivity Catch-Up: Evidence from European Firms*. Scandinavian Journal of Economics. doi:10.1111/sjoe.12212, which has been published in final form at: http://onlinelibrary.wiley.com/doi/10.1111/sjoe.12212/abstract. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
• Contract Date: May 21, 2016