Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms

Abstract

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.

Technological Catch-up to the National and Regional Frontier: Firm-level Evidence for India

“…Girma and Kneller (2005) show firm-level productivity convergence in the UK service sector. Chevalier et al (2012) find similar results amongst French firms, and Gemmell et al (2018) confirm that productivity catch-up is important source of productivity growth for European firms using firm-level data for 11 countries.…”

DO CORPORATE TAXES HARM ECONOMIC PERFORMANCE? EXPLAINING DISTORTIONS IN R&D- AND EXPORT-INTENSIVE UK FIRMS

“…2. Gemmell et al (2016) show that negative effects induced from higher corporation tax is proportionally higher to small firms. This effect is attributed to the fact that small firms are more likely to be credit constrained in the post-tax period, which also affects their capacity to raise external funding.…”

Boon or bane? On productivity and environmental regulation

“…Following the literature (e.g. Gemmell et al 2018;Richter and Schiersch 2017;Collard-Wexler and De Loecker 2015;Lu and Yu 2015;Du et al 2014;Del Bo and Chiara 2013;Doraszelski and Jaumandreu 2013;Crinò and Epifani 2012;De Loecker and Warzynski 2012;Arnold et al 2011;De Loecker 2007a;Javorcik 2004), I estimate three-input revenue-based Cobb-Douglas production functions, as described in Eq. (1), with the method by Ackerberg et al (2015) explained in Appendix 1. y denotes logged output (dependent variable), k logged capital (state variable), l logged labour (free variable), and m logged material (proxy variable).…”

“…To consider heterogenous input elasticities across countries, I follow the majority of studies (e.g. Fons-Rosen et al 2021;Levine and Warusawitharana 2021;Gemmell et al 2018;Olper et al 2016) and estimate Eq. (1) for each two-digit NACE industry-country combination.…”