Research on Paying Taxes

Doing Business considers the following list of papers as relevant for research on paying taxes. Some papers—denoted with an asterisk (*)—use Doing Business data for their empirical analysis. If we've missed any important research, please let us know.

  • Are corruption and taxation really harmful to growth? firm level evidence

    Author(s) : Raymond Fisman and Jakob Svensson Journal : Journal of Development Economics, Volume 83, Issue 1, May 2007, Pages 63-75 Abstract : Exploiting a unique data set containing information on the estimated bribe payments of Ugandan firms, we study the relationship between bribery payments, taxes and firm growth. Using industry-location averages to circumvent potential problems of endogeneity and measurement errors, we find that both the rate of taxation and bribery are negatively correlated with firm growth. A one-percentage point increase in the bribery rate is associated with a reduction in firm growth of three percentage points, an effect that is about three times greater than that of taxation. This provides some validation for firm-level theories of corruption which posit that corruption retards the development process to an even greater extent than taxation.

  • Corporate tax avoidance and firm value

    Author(s) : Mihir A. Desai and Dhammika Dharmapala Journal : The Review of Economics and Statistics, August 2009, Vol. 91, No. 3, Pages 537-546 Abstract : Do corporate tax avoidance activities advance shareholder interests? This paper tests alternative theories of corporate tax avoidance using unexplained differences between income reported to capital markets and to tax authorities. OLS estimates indicate that the effect of tax avoidance on firm value is a function of firm governance, as predicted by an agency perspective on corporate tax avoidance. Instrumental variables estimates based on exogenous changes in tax regulations yield larger overall effects and reinforce the basic result, as do several robustness checks. The results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder-manager relations.

  • Corporate tax effects on the quality and quantity of FDI

    Author(s) : Becker, Johannes; Fuest, Clemens; Riedel, Nadine Journal : European Economic Review, Volume 56, Issue 8, Pages 1495-1511 , November 2012 Abstract : This paper measures the relative importance of quality and quantity effects of corporate taxation on foreign direct investment. Quantity is affected if corporate taxes reduce the equilibrium stock of foreign capital in a given country. Quality effects arise if taxes decrease the extent to which investment contributes to the corporate tax base and the capital intensity of production. Depending on the sign of the quality effects, the detrimental welfare effects of corporate taxation are either mitigated or aggravated. We derive a number of hypotheses about how corporate tax changes may affect the quality of investment. Our hypotheses are then tested using data from a large sample of European multinationals. With regard to corporate tax effects on the corporate tax base, we find that quality effects account for up to 40% of the total effect. With regard to corporate tax effects on labour income, our results suggest that quality effects mitigate the negative quantity effect by nearly 60% (as corporate taxes strongly increase the labour intensity of production). An important implication is that governments should not exclusively care about the size of inbound FDI flows but also about their specific characteristics, i.e. their quality.

  • Do complicated tax systems prevent foreign direct investment?

    Author(s) : Lawless, Martina Journal : Economica, Volume 80, Issue 317, Pages 1-22, January 2013 Abstract : The negative relationship between tax rates and FDI is well known. This paper looks at how complexity of the tax system affects FDI. Fulfilling tax requirements can be time-consuming, and this implies a cost for more complex tax systems. Alternatively, complexity may provide opportunities to reduce the overall tax bill. We find that measures of tax complexity have a significant inhibiting effect on the presence of FDI for a country pair, but have little impact on the level of FDI flows. A 10% reduction in tax complexity is comparable to a one percentage point reduction in effective corporate tax rates.

  • Effects of corporate tax reforms on SMEs? investment decisions under the particular consideration of inflation

    Author(s) : ChangWoonNam and DoinaMariaRadulescu Journal : Small Business Economics, Springer, Volume 29, Numbers 1-2 / June, 2007 Abstract : Corporate tax reforms carried out in EU countries since 1980 entail lower statutory tax rates and reductions in generous tax depreciation provisions. Several countries including the UK have reduced tax rates for small and medium sized enterprises (SMEs). This study compares incentive effects of such reforms on the SMEs? investment decisions adopting a simple present value model. Ceteris paribus, tax rates and depreciation rules vary in the model simulation, while the application of historical cost accounting method in inflationary phases leads to fictitious increases in nominal net present value. Apart from the construction of international ranking, country-specific patterns of reform effects are also illustrated.

  • Entrepreneurial innovations and taxation

    Author(s) : Andreas Hauflera, Pehr-Johan Norbäckc, Lars Perssonb Journal : Journal of Public Economics 113: 13-31 Abstract : Stimulating entrepreneurship is high on the policy agenda of many countries. We study the effects of tax policies on entrepreneurs' choice of riskiness (or quality) of an innovation project, and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset provisions in the tax system induce entrepreneurs innovating for entry to choose projects with inefficiently little risk. The same distortion does not arise when entrepreneurs sell their innovation in a competitive bidding process to an incumbent before the uncertainty is revealed. Tax systems which systematically favor market entry of entrepreneurs can thus lead to welfare losses due to inefficient quality choices, despite leading to more competition in the product market.

  • Fiscal policies and asset prices

    Author(s) : Croce, M. Max; Kung, Howard; Nguyen, Thien T.; et al. Journal : Review of Financial Studies, Volume 25, Issue 9, Pages 2635-2672, September 2012 Abstract : The surge in public debt triggered by the financial crisis has raised uncertainty about future tax pressure and economic activity. We examine the asset pricing effects of fiscal policies in a production-based general equilibrium model in which taxation affects corporate decisions by

  • Tax compliance and firms' strategic interdependence

    Author(s) : Ralph Bayer and Frank Cowell Journal : Journal of Public Economics, Volume 93, Issues 11-12, December 2009, Pages 1131-1143 Abstract : We focus on a relatively neglected area of the tax-compliance literature in economics, the behaviour of firms. We examine the impact of alternative audit rules on receipts from a tax on profits in the context of strategic interdependence of firms. The enforcement policy can have an effect on firms' behaviour in two dimensions ? their market decisions as well as their compliance behaviour. An appropriate design of the enforcement policy can thus have a ?double dividend? by manipulating firms in both dimensions.

  • Tax structure and economic growth

    Author(s) : Young Lee and Roger H. Gordon Journal : Journal of Public Economics, Volume 89, Issues 5-6, June 2005, Pages 1027-1043 Abstract : Past theoretical work predicts that higher corporate tax rates should decrease economic growth rates, while the effects of high personal tax rates are less clear. In this paper, we explore how tax policies in fact affect a country's growth rate, using cross-country data during 1970?1997. We find that statutory corporate tax rates are significantly negatively correlated with cross-sectional differences in average economic growth rates, controlling for various other determinants of economic growth, and other standard tax variables. In fixed-effect regressions, we again find that increases in corporate tax rates lead to lower future growth rates within countries. The coefficient estimates suggest that a cut in the corporate tax rate by 10 percentage points will raise the annual growth rate by one to two percentage points.

  • Tax structure and entrepreneurship

    Author(s) : Mina Baliamoune-Lutz, Pierre Garello Journal : Small Business Economics Abstract : Using macro-level panel data, we examine the effects of taxation and tax progressivity on entrepreneurship in a large group of European countries. We address two main questions. First, we try to explore whether tax increases discourage entrepreneurial activity, focusing on new self-employment (nascent entrepreneurship). Second, we investigate the impact of tax progressivity on entrepreneurship, again focusing on new self-employment. We find that tax progressivity at higher-than-average incomes has a robust negative effect on nascent entrepreneurship. We discuss the policy implications of our results.

  • Tax structures in developing countries: many puzzles and a possible explanation

    Author(s) : Roger Gordon and Wei Li Journal : Journal of Public Economics, Volume 93, Issues 7-8, August 2009, Pages 855-866 Abstract : Tax policies seen in developing countries are puzzling on many dimensions, given the sharp contrast between these policies and both those seen in developed countries and those forecast in the optimal tax literature. In this paper, we explore how forecasted policies change if firms can successfully evade taxes by conducting all business in cash, thereby avoiding any use of the financial sector. The forecasted policies are now much closer to those observed.

  • The behavioral foundations of corporate dividend policy a cross-country analysis

    Author(s) : Wolfgang Breuer, M. Oliver Rieger, K. Can Soypak Journal : Journal of Banking & Finance 42: 247-65 Abstract : We study a model that relates dividend payout policy to behavioral issues based on the ideas of mental accounting. A panel analysis across 29 countries and over 43,000 firm-years demonstrates that our model studying the relation between dividends and patience, loss aversion, and ambiguity aversion can be verified empirically. Our paper seems to be the first that highlights empirically in a straightforward way the relevance of behavioral patterns as important determinants for corporate dividend policy, while previous empirical studies could tackle this issue only indirectly. With several robustness tests we also address potential doubts concerning the quality of our data and analyze further implications of our theory.

  • The effect of business regulations on nascent and young business entrepreneurship

    Author(s) : Andr Stel & David Storey & A. Thurik Journal : Small Business Economics, Springer, vol. 28(2), pages 171-186, March. Abstract : We examine the relationship, across 39 countries, between regulation and entrepreneurship using a new two-equation model. We find the minimum capital requirement required to start a business lowers entrepreneurship rates across countries, as do labour market regulations. However the administrative considerations of starting a business? Such as the time, the cost, or the number of procedures required? Are unrelated to the formation rate of either nascent or young businesses. Given the explicit link made by Djankov et al. (2002) between the speed and ease with which businesses may be established in a country and its economic performance? And the enthusiasm with which this link has been grasped by European Union policy makers? Our findings imply this link needs reconsidering.

  • Which countries become tax havens?

    Author(s) : Dhammika Dharmapala and James R. Hines Jr. Journal : Journal of Public Economics, Volume 93, Issues 9-10, October 2009, Pages 1058-1068 Abstract : This paper analyzes the factors influencing whether countries become tax havens. Roughly 15% of countries are tax havens; as has been widely observed, these countries tend to be small and affluent. This paper documents another robust empirical regularity

  • Taxes, corruption, and entry

    Author(s) : Belitski, Maksim; Chowdhury, Farzana; Desai, Sameeksha Journal : Small Business Economics 47(1): 201-16 Abstract : Tax policies and corruption are important institutional considerations which can shape entrepreneurship. We investigate how tax rates, and the interaction between corruption and tax rates, influence variations in entry across a panel of 72 countries in the period 2005–2011. We use a series of panel estimations as well as several robustness checks to test these effects, using relevant controls for economic development, the size of the state, and other regulatory and tax policy measures. We find that higher tax rates consistently discourage entry. Further, we find that although the direct influence of corruption on entry is also consistently negative, the interaction influence of corruption and tax rate is positive. This indicates that corruption can offset the negative influence of high taxes on entry. We discuss the implications of our findings for policymakers and future research.

  • Does E-Government Improve Government Capacity? Evidence from Tax Administration and Public Procurement

    Author(s) : Kochanova, Anna, Zahid Hasnain, and Bradley Larson Journal : Policy Research Working Paper 7657, World Bank Abstract : Using a cross-country data set on e-government systems, this paper analyzes whether e-filing of taxes and e-procurement adoption improves the capacity of governments to raise and spend resources through the lowering of tax compliance costs, improvement of public procurement competitiveness, and reduction of corruption. The paper finds that information and communications technology can help improve government capacity, but the impact of e-government varies by type of government activity and is stronger in more developed countries. Implementation of e-filing systems reduces tax compliance costs as measured by the number of tax payments, time required to prepare and pay taxes, likelihood and frequency of firms being visited by a tax official, perception of tax administration as an obstacle, and incidence of bribery. The effects of e-procurement are weaker, with the number of firms securing or attempting to secure a government contract increasing with e-procurement implementation only in countries with higher levels of development and better quality institutions. The paper finds no systematic relationship between e-procurement and bureaucratic corruption.

  • Corporate income taxes and entrepreneurship

    Author(s) : Block, Jörn Journal : IZA Journal of Labor Economics Abstract : Corporate income taxation influences the quantity and type of entrepreneurship, which in turn affects economic development. Empirical evidence shows that higher corporate income tax rates reduce business density and entrepreneurship entry rates and increase the capital size of new firms. The progressivity of tax rates increases entrepreneurship entry rates, whereas highly complex tax codes reduce them. Policymakers should understand the effects and underlying mechanisms that determine how corporate income taxation influences entrepreneurship in order to provide a favorable business environment.

  • Explaining changes in tax burdens in Latin America: Do politics trump economics?

    Author(s) : Hallerberg, Mark; Scartascini, Carlos Journal : European Journal of Political Economy 48: 162-79 Abstract : This paper examines whether elections, which are generally held on fixed dates, and banking crises explain the timing of tax reforms and the allocation of the additional tax burden. Using an original fine-grained data set of tax reforms, the paper finds support for the role of these two sources of variation. In particular, the probability of reform is higher during banking crises. During electoral periods, increasing taxes becomes highly unlikely, even if the government is facing financing problems. Interestingly, politics seem to trump economics

  • Achieving More with Less

    Author(s) : International Monetary Fund Journal : Fiscal Monitor, April 2017, IMF Publications Abstract : Fiscal policy has recently gained prominence, both in public debate and in governments’ policy. A reassessment of fiscal policy is taking place, stressing its greater role in fostering sustainable and inclusive growth and smoothing the economic cycle. At the same time, the high uncertainty surrounding the outlook and high levels of public debt require a better understanding and managing of fiscal risks. Therefore, fiscal policy has the difficult task of achieving more and better in a more constrained environment. This issue of the Fiscal Monitor shows how the evolution of the debate on fiscal policy can shed new light on fiscal developments and help frame policy recommendations to countries.

  • A Growth-Friendly Path for Building Fiscal Buffers in the Caucuses and Central Asia

    Author(s) : Edward R Gemayel, Lorraine Ocampos, Matteo Ghilardi, James Aylward Journal : International Monetary Fund Abstract : Since 2014, large and persistent external shocks have hit the CCA region, particularly a slump in global commodity prices and slower growth in its key economic partners. Fiscal accommodation, along with currency adjustment, has helped the CCA mitigate the impact of the external shocks. However, amid weakening revenues, increased public spending has widened budget deficits, weakened external balances, and increased public debts. Fiscal policy and strengthening fiscal frameworks must play a central role in helping build buffers and ensuring debt sustainability while supporting growth. This requires (1) tightening fiscal policies to reduce deficits to help restore external balance and fiscal sustainability, (2) strengthening tax systems and tax collection and tilting expenditure toward a more productive and growth-enhancing composition, and (3) implementing public financial management reforms and strengthening fiscal institutions, including through fiscal rules.

  • Tax Administration and Firm Performance: New Data and Evidence for Emerging Market and Developing Economies

    Author(s) : Era Dabla-Norris, Florian Misch, Duncan Cleary, Munawer Khwaja Journal : International Monetary Fund Abstract : Tax compliance costs tend to be disproportionately higher for small and young businesses. This paper examines how the quality of tax administration affects firm performance for a large sample of firms in emerging market and developing economies. We construct a novel, internationally comparable, and multidimensional index of tax administration quality (the TAQI) using information from the Tax Administration Diagnostic Assessment Tool. We show that better tax administration attenuates the productivity gap of small and young firms relative to larger and older firms, a result that is robust to controlling for other aspects of tax policy and of economic governance, alternative definitions of small and young firms, and measures of the quality of tax administration. From a policy perspective, we provide evidence that countries can reap growth and productivity dividends from improvements in tax administration that lower compliance costs faced by firms.

  • Why do firms evade taxes? the role of information sharing and financial sector outreach

    Author(s) : Thorsten Beck, Chen Lin, Yue Ma Journal : The Journal of Finance 69(2): 763-817 Abstract : Tax evasion is a widespread phenomenon across the globe and even an important factor in the ongoing sovereign debt crisis. We show that firms in countries with better credit information?sharing systems and higher branch penetration evade taxes to a lesser degree. This effect is stronger for smaller firms, firms in smaller cities and towns, firms in industries relying more on external financing, and firms in industries and countries with greater growth potential. This effect is robust to instrumental variable analysis, controlling for firm fixed effects in a smaller panel data set of countries, and many other robustness tests.

  • Business regulations and growth

    Author(s) : Divanbeigi, Ramalho Journal : Policy Research Working Paper 7299, World Bank Abstract : Over the past decade, there has been increased interest in improving business regulations, in part because of the increased availability of data that can inform and monitor those improvements. This paper analyzes whether these regulatory changes are linked to economic outcomes. With panel data for 10 years across more than 180 countries, the paper establishes the link between business regulations, firm creation, and growth. It is found that an improvement of 10 points in the overall measure of business regulations is linked to an increase of around 0.5 new businesses per 1,000 adults. Moreover, the results show that although small changes in the overall level of business regulations may have a negligible link to growth, moving from the lowest quartile of improvement in business regulations to the highest quartile is associated with a significant increase in annual per capita growth of around 0.8 percentage points. In addition, the results highlight the importance of sound entry and exit regulations and sound credit market regulations and court enforcement for growth.

  • Does business regulation matter for banks in the European Union?

    Author(s) : Antonios Nikolaos Kalyvas, Emmanuel Mamatzakis Journal : Journal of International Financial Markets, Institutions and Money 32: 278-324 Abstract : This paper provides a comprehensive analysis of the impact of business and financial specific regulations on banks in the EU-27 over the 2004?2010 period. We employ a dataset of a wide range of business regulation indices from the ?Doing Business? project of the World Bank. Results for the credit regulation indices show that the strength of creditor rights is negatively related to bank performance as measured by cost efficiency, although this effect subdues during the recent crisis period (2008?2010). On the other hand, credit information sharing improves efficiency, a result that is further strengthened during the crisis. Tax-compliance costs and entry regulation constrain bank efficiency. More stringent regulation of labour, in terms of minimum wage and dismissal costs, and insolvency regulation are positively associated with efficiency. Furthermore, regulation that protects investors from management expropriation, such as the extent of director liability, exerts a positive impact on bank efficiency and more so in the crisis years. Finally, we use interaction terms between the business regulation variables and institutional quality as measured by the rule of law and control of corruption. Results show that there are cases that institutional quality influences the individual effects of specific types of business regulation on bank efficiency.

  • Why is fiscal policy often procyclical?

    Author(s) : Alberto Alesina, Filipe R. Campante, Guido Tabellini Journal : Journal of the European Economic AssociationVolume 6, Issue 5, pages 1006?1036, September 2008 Abstract : Fiscal policy is procyclical in many developing countries. We explain this policy failure with a political agency problem. Procyclicality is driven by voters who seek to ?starve the Leviathan? to reduce political rents. Voters observe the state of the economy but not the rents appropriated by corrupt governments. When they observe a boom, voters optimally demand more public goods or lower taxes, and this induces a procyclical bias in fiscal policy. The empirical evidence is consistent with this explanation: Procyclicality of fiscal policy is more pronounced in more corrupt democracies.

  • Institutions and Venture Capital

    Author(s) : Lerner, Josh; Tag, Joacim Journal : Industrial and Corporate Change, Volume 22, Issue 1, Pages 153-182, February 2013 Abstract : We survey the literature on venture capital and institutions and present a case study comparing the development of the venture capital market in the United States and Sweden. Our literature survey underscores that the legal environment, financial market development, the tax system, labor market regulations, and public spending on research and development correlate with venture capital activities across countries. Our case study suggests these institutional differences led to the later development of an active venture capital market in Sweden compared with the United States. In particular, a later development of financial markets and a heavier tax burden for entrepreneurs have played a key role.