Not so fast Mr. policy maker ! Novel empirical strategies for evaluating individual corporate tax rate changes and their effects on wages

Abstract

This paper contributes to the literature by developing a framework to analyse specific tax-rate changes at the national level. It proposes and compares three new identification strategies: The first specification uses firm reported profitability as the basis for the division of the treatment and control groups. The second sets up a paired cross-country analysis where the tax rate change schedule allows for a comparison between two nations. And the final, builds on Dobbins & Martin (2016) and Atshuler & Liu (2013), identifying the shock through the ownership status of the firm (whether owned by a foreign company or domestic one). All three models use the event-time study design, varying only on certain controls added or removed and on the definition of the treatment and control groups. These identifications contribute to the literature by enabling an analysis for countries that have systematic flat tax structures (i.e. no regional variation built into the statutory tax rate). Ultimately, serving as a tool for a closer scrutiny of tax rate changes as a policy mandate.

The paper looks at the 2014, 2017, and 2013 tax rate changes in Finland, Italy, and Sweden respectively. The study uses firm-level data drawn from Amadeus combined with regional and national level data from Eurostat and the World Bank Database. The paper finds statistically significant results for the three shocks. There are slight discrepancies in the direction of the results across the three models but overall there is enough alignment that the results prove to be promising and certainly warrant further research.