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on Public Finance |
| By: | Nguyen, Hang T. T. |
| Abstract: | This paper investigates the relationship between corporate income tax rates (CITR) and firm-level productivity growth using AMADEUS data of 304, 410 observations from 79, 842 European firms from 2006 to 2019. The results imply a robust non-linear relationship: higher CITRs are positively associated with productivity growth for high-productivity firms near the technological frontier and negatively associated with the productivity catch-up of less productive firms. Heterogeneity tests suggest a stronger productivity response to tax rate changes of small and medium-sized enterprises (SMEs) and domestic firms, while I do not find a significant productivity response to tax rate changes for large and multinational firms. The main findings are robust across various productivity estimation methods and model specifications and challenge the conventional view that higher business tax rates have a linear and negative effect on productivity growth. The paper contributes to the ongoing debate about the role of corporate taxation in shaping economic competitiveness and long-term growth. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:335901 |
| By: | Xavier Dufour; Pierre-Carl Michaud; Michael G. Smart |
| Abstract: | We estimate heterogeneous responses to top-bracket tax reforms using a triple-difference design that exploits variation in tax rate changes and the thresholds at which they apply. This strategy identifies behavioral responses even in the presence of unobservable shocks to the income distribution. Higher-income taxpayers respond more to top-rate changes, but our results indicate that this reflects the salience of the reforms—the larger mechanical change in average tax rates at higher incomes—rather than heterogeneity in substitution elasticities. We discuss implications for the revenue and distributional effects of top-bracket tax reforms. |
| JEL: | D31 H21 H24 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34731 |
| By: | Leonzio Rizzo; Riccardo Secomandi; Luisa Loiacono; Enrico Rubolino |
| Abstract: | In extraordinary times, policy makers need to find new ways to finance public expenditures and restore public budgets. Taxing who benefit from the extraordinary time would be the easy way, but the threat of negative trickle-down responses often make policy makers reluctant to go along this road. This paper studies how big corporations respond to tax hikes in extraordinary times. We leverage variations from the “Robin Hood†tax: a large surcharge applying to Italian firms operating in the energy sector with revenues above a discrete threshold. After showing that firms did not game the law by manipulating their revenues, our regression discontinuity estimates provide compelling evidence that the tax did not hurt in vestments nor profits, and that the tax burden is not shifted to workers. Moreover, our results are confirmed by the additional analysis we run using a difference in difference approach. |
| Keywords: | corporate taxation; big corporation; regression discontinuity design |
| JEL: | H22 H25 G38 L25 |
| Date: | 2025–11–03 |
| URL: | https://d.repec.org/n?u=RePEc:udf:wpaper:20250214 |
| By: | Hundsdoerfer, Jochen; Löwe, Maren |
| Abstract: | We analyze how value added taxes (VATs) affect labor market outcomes (firms' employee costs, wages, hours worked, employment). While VATs are designed to tax consumption, they are levied at the firm level, which creates potential spillovers to labor markets. We hypothesize that VATs affect wages and employment through two channels: an inflation adjustment effect, where employees demand higher wages to compensate for VAT-induced price increases; and a profitability effect, where incomplete pass-through reduces firms' net sales and profits, putting downward pressure on wages and employment. We exploit variation in VAT rates, measuring labor market outcomes at the firm and country level. We find economically significant negative effects of VAT rates at the firm level on employee costs and at the country level on wages and employment. At the firm level, a one percentage point increase in the standard VAT rate corresponds to a 3.886% reduction in employee costs. At the country level, the same increase is associated with a 2.802% decline in average nominal wages. We find a 1.444% decline in employment at the country level following a one percentage point increase in the VAT rate. For working hours, the evidence is inconclusive and at most suggests a reduction. Heterogeneity analyses suggest that small firms and firms with high profit margins react stronger; among the employees, the age group 15-24 years is hit hardest. Our study provides the first systematic cross-country evidence on the labor market consequences of VATs. |
| Keywords: | VAT, Labor Supply, Labor Demand, Wages, VAT Incidence, Inflation, Wage Bargaining |
| JEL: | D22 D24 H22 H25 M51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:335902 |
| By: | Sam Desiere; Rigas Oikonomou; Tiziano Toniolo; Bruno Van der Linden; Gert Bijnens (-) |
| Abstract: | Belgium’s 2016 payroll tax exemption for first-time employers triggered a sharp increase in firms hiring their first worker but little growth among larger firms. To account for this pattern, we develop and estimate a directed search model—with discrete hiring, firm heterogeneity, and endogenous entry—using Belgian microdata. The exemption reduces the high marginal cost of the first hire, enabling many previously non-hiring entrepreneurs to become employers, but most lack the productivity needed to expand beyond one worker. The model matches the post-reform size distribution and identifies the conditions under which size-dependent hiring subsidies can foster sustained firm growth. |
| Keywords: | payroll taxes, size-dependent policies, hiring frictions, wage subsidies, competitive search theory |
| JEL: | H25 J08 J23 J38 L25 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:26/1133 |
| By: | Anders Jensen; Jonathan L. Weigel |
| Abstract: | The empirical economics literature on taxation in developing countries has centered on the importance of third-party information for enforcement. Yet, while surely a long-run objective, leveraging such information remains out of reach in many developing countries due to largely informal economies and low state capacity. This article examines an emerging complementary literature focused on strengthening the 'sinews' of state capacity: tax administration. We argue that reforms to the organizational structure, personnel management, and task management of tax authorities have potential to raise tax capacity in developing countries. We also argue that efforts to improve the state's legitimacy – popular acceptance of its right to tax – can increase capacity and may complement investments in tax administration. Our approach bridges a long-standing divide between how scholars in public finance and political economy approach tax capacity building in developing countries. |
| JEL: | D70 O10 P00 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34729 |
| By: | Joshua McNamara (University of Waikato) |
| Abstract: | This paper examines whether retail fuel prices in New Zealand adjust asymmetrically to cost shocks, using the introduction and repeal of the Auckland Regional Fuel Tax (ARFT) as a natural experiment. The ARFT imposed a 10 cents-per-litre levy on fuel sold in Auckland from July 2018 to June 2024, while neighbouring regions remained untaxed. Exploiting these sharp and opposite policy changes, the analysis employs a difference-in-differences framework using daily, station-level fuel price data from Auckland, Northland, and Waikato. At the aggregate level, fuel prices increased by 10.8 cents per litre following the tax introduction and fell by 11.6 cents per litre after its repeal, indicating near-complete and symmetric pass-through on average. However, substantial spatial heterogeneity emerges when local competitive conditions are considered. Among stations located close to competitors operating under a different tax regime, prices rose almost fully after the tax was introduced but fell by only around three-quarters as much following its removal. Distance-based interaction estimates confirm that pass-through varies systematically with proximity to oppositely treated competitors, consistent with localised asymmetric price transmission driven by spatial competition. These findings show that while fuel prices may adjust symmetrically on average, asymmetric adjustment can persist in local markets, with important implications for the incidence of regional fuel taxes and their repeal. |
| Keywords: | asymmetric price transmission; price transmission; fuel tax; spatial competition; difference-indifferences; retail fuel prices |
| JEL: | L11 H22 Q41 R12 |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:wai:econwp:26/01 |