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

VATT Institute for Economic Research Working Papers 85

37 Pages Posted: 29 Apr 2017

See all articles by Wian Boonzaaier

Wian Boonzaaier

Government of the Republic of South Africa - South Africa National Treasury

Jarkko Harju

Government of the Republic of Finland - VATT Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Tuomas Matikka

VATT Institute for Economic Research

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2017

Abstract

We study the responsiveness of small and medium-sized firms to corporate income taxes using population-wide administrative data from South Africa. We find sizable bunching of firms at the corporate income thresholds where the corporate tax rate increases, implying active responses to corporate income taxes. The observed bunching is very sharp, and reacts immediately to changes in the location of the kink points. These observations suggest that a sizable part of the response is driven by reporting responses rather than real economic behavior. We find indicative evidence that reporting behavior is linked with underreporting of sales and legal tax planning activities.

Keywords: corporate taxation, small firms, emerging economies, bunching

JEL Classification: H21, H25, H32, O12

Suggested Citation

Boonzaaier, Wian and Harju, Jarkko and Matikka, Tuomas and Pirttila, Jukka, How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers (April 28, 2017). VATT Institute for Economic Research Working Papers 85. Available at SSRN: https://ssrn.com/abstract=2960075 or http://dx.doi.org/10.2139/ssrn.2960075

Wian Boonzaaier

Government of the Republic of South Africa - South Africa National Treasury ( email )

Pretoria
South Africa

Jarkko Harju (Contact Author)

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Tuomas Matikka

VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

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