Does Corporate Tax Planning Affect Firm Productivity?

69 Pages Posted: 8 Jun 2021 Last revised: 21 Nov 2022

See all articles by Spyridon Gkikopoulos

Spyridon Gkikopoulos

The University of Machester - Alliance Manchester Business School

Edward Lee

University of Manchester - Alliance Manchester Business School

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

Date Written: December 7, 2021

Abstract

We examine the relation between corporate tax planning and firm-level productivity. Using a sample of U.S. public firms from 1993 to 2017, we find that lower effective tax rates are associated with higher productivity. Tax planning mutes the tax wedge on productive inputs and facilitates capital and labor investments. We provide evidence of two channels underlying the observed link. First, tax planning enables firms to scale up and benefit from economies of scale. Second, tax planning raises the marginal return on innovation and firms respond with increased knowledge capital intensity. Our findings are insensitive to a litany of robustness tests. We exploit the introduction of Check-the-Box regulation and the implementation of an Irish tax reform as exogenous sources of tax planning variation to facilitate Difference-in-Differences analyses. Our findings enhance the understanding on the economic implications of tax planning, and could provide insights for informed tax policy debates.

Keywords: Check-the-Box, Corporate tax planning, Irish tax havens, Productivity, TFP

JEL Classification: D24, H21, H25, H26, J24

Suggested Citation

Gkikopoulos, Spyridon and Lee, Edward and Stathopoulos, Konstantinos, Does Corporate Tax Planning Affect Firm Productivity? (December 7, 2021). Available at SSRN: https://ssrn.com/abstract=3856522 or http://dx.doi.org/10.2139/ssrn.3856522

Spyridon Gkikopoulos (Contact Author)

The University of Machester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

HOME PAGE: http://sp-gkikopoulos.com/

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://research.manchester.ac.uk/en/persons/k.stathopoulos

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