Large and Influential: Firm Size and Governments' Corporate Tax Rate Choice

49 Pages Posted: 20 Apr 2018

See all articles by Nadine Riedel

Nadine Riedel

Oxford University CBT; University of Hohenheim

Martin Simmler

University of Oxford - Oxford University Centre for Business Taxation; German Institute for Economic Research (DIW Berlin)

Date Written: February 21, 2018

Abstract

Theory suggests that large firms are more likely to engage in lobbying behaviour and are geographically more mobile than smaller entities. Conditional on jurisdiction size, policy choices are thus predicted to depend on the shape of a jurisdiction’s firm size distribution, with more business-oriented policies being enacted if jurisdictions host large firms. The paper empirically tests this prediction using local business taxation in Germany as a testing ground. Exploiting rich and exogenous variation in localities’ firm size structures, we find evidence for an inverse relationship between the size of hosted entities and communities’ local business tax choices. The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business-friendly design of (tax) policies.

Keywords: firm size, corporation tax, political economy

JEL Classification: H200, H700

Suggested Citation

Riedel, Nadine and Simmler, Martin, Large and Influential: Firm Size and Governments' Corporate Tax Rate Choice (February 21, 2018). CESifo Working Paper Series No. 6904, Available at SSRN: https://ssrn.com/abstract=3165313 or http://dx.doi.org/10.2139/ssrn.3165313

Nadine Riedel (Contact Author)

Oxford University CBT ( email )

Park End Street
Oxford, Oxfordshire OX1 1HP
United Kingdom

University of Hohenheim ( email )

Stuttgart
Germany

Martin Simmler

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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