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

28 Pages Posted: 26 Mar 2018

See all articles by Norman Gemmell

Norman Gemmell

Victoria University of Wellington - Victoria Business School

Richard Kneller

University of Nottingham

Danny McGowan

University of Birmingham

Ismael Sanz

Universidad Rey Juan Carlos

José F. Sanz-Sanz

Universidad Complutense de Madrid (UCM)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2018

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.

Keywords: Convergence, firms, productivity, taxation

Suggested Citation

Gemmell, Norman and Kneller, Richard and McGowan, Danny and Sanz, Ismael and Sanz-Sanz, José F., Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms (April 2018). The Scandinavian Journal of Economics, Vol. 120, Issue 2, pp. 372-399, 2018. Available at SSRN: https://ssrn.com/abstract=3149188 or http://dx.doi.org/10.1111/sjoe.12212

Norman Gemmell (Contact Author)

Victoria University of Wellington - Victoria Business School ( email )

PO Box 600
Wellington 6140
New Zealand

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Danny McGowan

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Ismael Sanz

Universidad Rey Juan Carlos ( email )

Calle Tulipán, s/n
Madrid, Móstoles 28230
Spain

José F. Sanz-Sanz

Universidad Complutense de Madrid (UCM) ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

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