Does Corporate Tax Planning Affect Firm Productivity?

74 Pages Posted: 8 Jun 2021 Last revised: 27 Jul 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.-listed firms from 1994 to 2017, we show that, ceteris paribus, lower effective tax rates lead to higher production efficiency. Consistent with the "funding gap" of innovative investments due to debt market frictions, the results indicate that productivity is more sensitive to tax planning for knowledge capital intensive firms. The findings also suggest that tax planning enables firms to increase in size, benefiting from economies of scale. To mitigate endogeneity concerns, we employ a battery of robustness tests, including a quasi-natural research design that exploits a plausibly exogenous increase in the tax planning opportunities of certain firms. Our findings enhance the understanding on the economic implications of corporate tax planning, and provide insights for informed tax policy debates.

Keywords: Corporate tax planning, Irish tax havens, Productivity, TFP, Knowledge capital

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://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

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