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

40 Pages Posted: 21 Feb 2019

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 Pirttilä

University of Helsinki

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

We study the responsiveness of small and medium-sized firms to a small-business corporate income tax schedule using population-wide administrative data from South Africa. We find sizeable 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 sizeable part of the response is driven by reporting responses rather than real economic behavior. We find indicative evidence that reporting behavior is linked to underreporting of sales and legal tax-planning activities.

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

JEL Classification: H210, H250, H320, O120

Suggested Citation

Boonzaaier, Wian and Harju, Jarkko and Matikka, Tuomas and Pirttilä, Jukka, How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers (2018). CESifo Working Paper No. 7277, Available at SSRN: https://ssrn.com/abstract=3338602

Wian Boonzaaier (Contact Author)

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

Pretoria
South Africa

Jarkko Harju

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 Pirttilä

University of Helsinki ( email )

University of Helsinki
Helsinki, FIN-00014
Finland

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