Corporate Tax Cuts for Small Firms: What Do Firms Do?

67 Pages Posted: 17 Apr 2024

See all articles by Wei Cui

Wei Cui

affiliation not provided to SSRN

Mengying Wei

University of International Business and Economics (UIBE) - School of Banking and Finance

Weisi Xie

Shanghai Jiao Tong University (SJTU)

Jing Xing

Antai College of Economics & Management, Shanghai Jiao Tong University

Abstract

What do small firms do when given a semi-permanent corporate income tax cut? We examine firm responses to a substantial reduction in the tax rate for small- and micro-profit enterprises (SMPE) in China, using gradual increases in the qualifying threshold during 2010-2016 for identification. Based on confidential tax returns, we find that newly qualified SMPEs with immediate tax savings increased investment and productivity, while there was no change in wages or payout to shareholders. There is some weak evidence the tax cut induced entry of micro-sized firms in financially constrained sectors. Yet its size-based design led to bunching and incentivized firms to slow down growth when they approached the size threshold.

Keywords: corporate tax, small businesses, investment, productivity, firm entry

Suggested Citation

Cui, Wei and Wei, Mengying and Xie, Weisi and Xing, Jing, Corporate Tax Cuts for Small Firms: What Do Firms Do?. Available at SSRN: https://ssrn.com/abstract=4797642 or http://dx.doi.org/10.2139/ssrn.4797642

Wei Cui

affiliation not provided to SSRN ( email )

No Address Available

Mengying Wei

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Weisi Xie

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Jing Xing (Contact Author)

Antai College of Economics & Management, Shanghai Jiao Tong University ( email )

1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China
86 21 52301040 (Phone)

HOME PAGE: http://www.acem.sjtu.edu.cn/en/faculty/xingjing.html

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