Large and influential: firm size and governments' corporate tax rate choice?

Bohm, Tobias, Riedel, Nadine and Simmler, Martin (2016) Large and influential: firm size and governments' corporate tax rate choice? Centre for Business Taxation Working Paper, Oxford.

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Theory suggests that large firms are more likely to engage in lobbying behaviour and have better bargaining positions against their host governments than smaller entities. Conditional on jurisdiction size, public policy choices are thus predicted to depend on the shape of a jurisdiction's firm size distribution, with more business-friendly policies being enacted if economic activity is concentrated in a small number of entities. We empirically assess this prediction studying local business tax choices of German municipalities. Exploiting rich and quasi-experimental variation in localities' firm size structures, we find evidence for an inverse relationship between the concentration of economic activity and communities' business tax choices. The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business-friendly design of (tax) policies.

Item Type: Other Working Paper
Keywords: Firm size, corporation tax, political economy
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 08 Feb 2017 14:38
Last Modified: 09 Oct 2018 12:34
Funders: n/a

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