How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This study has been prepared within the UNU-WIDER project on 'Firm-and Industry-level Analysis in South Africa', which is part of a larger research project on 'Regional Growth and Development in Southern Africa'. Terms of use: Documents in Copyright © UNU-WIDER 2016Information and requests: publications@wider.unu.edu ISSN 1798-7237 ISBN 978-92-9256-079-9 Typescript prepared by the Authors.The United Nations University World Institute for Development Economics Research provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research.UNU-WIDER acknowledges specific programme contribution from the National Treasury of South Africa to its project 'Regional Growth and Development in Southern Africa' and core financial support to its work programme from the governments of Denmark, Finland, Sweden, and the United Kingdom. Katajanokanlaituri 6 B, 00160 Helsinki, FinlandThe views expressed in this paper are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors. Abstract:In this paper we study the effects of various tax schedule discontinuities on the behavior of small firms using high-quality and population-wide tax register data from South Africa. We use the bunching method to analyse how these discontinuities affect the firm-size distribution. We first examine how the value-added tax threshold affects the sales distribution of firms. We also study the effects of two separate corporate income tax rate kinks. We find sizable bunching at each of these thresholds. The elasticity estimates for the corporate tax kink points are large, ranging from 0.7 to 1.6, whereas the elasticity of the value added is below 0.1. We find some suggestive evidence that part of the response is driven by tax evasion.

The Effects of Size-Based Regulation on Small Firms: Evidence from Vat Threshold

“…The bunching approach, first introduced by Saez (2010), has been used in a wide range of applications, such as income taxes, social transfers and pricing policies, to offer evidence of intensive margin responses. 7 The bunching methodology and recent literature is surveyed in Kleven (2015).…”

“…Liu and Lockwood (2015) show that firms in the UK bunch actively at the relatively large VAT threshold (100,000 euros). Also, Waseem (2015) observes a clustering of firms at the VAT threshold in Pakistan (42,000e), and Boonzaaier et al (2016) in South Africa (63,000e). In contrast, Asatryan and Peichl (2016) find no responses to the VAT threshold in Armenia (150,000e), but find that firms respond to other regulative thresholds.…”

Responses of Firms to Tax, Administrative and Accounting Rules: Evidence from Armenia

“…3 Among others, see Kleven and Waseem (2013), Best et al (2015) on Pakistan, Carrillo, Emran, and Anita (2012), Carrillo, Pomeranz, and Singhal (2016) on Ecuador, Bachas and Soto (2015) on Costa Rica, Pomeranz (2015) on Chile, Boonzaaier, Harju, Matikka, and Pirttilä (2016) on South Africa, Gebresilasse and Sow (2016) on Ethiopia. 4 We observe that by now the setting of a registration threshold is a rather universal feature of many VAT systems (see , Table A1 of the appendix for VAT thresholds around the world in 2013).…”