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Title: The effects of a temporary corporate income tax cut and deferral: Evidence from Vietnam
Authors: Anh, Pham
Keywords: Corporate tax
Issue Date: 14-Oct-2017
Series/Report no.: ;pp. 1 - 51
Abstract: Governments often use a temporary corporate income tax cut and deferral policy to encourage investment, despite a potential decrease in tax revenue. Yet, to my knowledge, no formal study has evaluated the effects of a temporary corporate income tax cut, tax deferral, or the combination of the two. This paper studies the causal impacts of a corporate income tax cut and deferral during the Great Recession in Vietnam. Vietnam implemented the policy from the end of 2008 through 2009. I compare firms just below and above the eligibility threshold, based on assets and employment. To address concerns about possible manipulation around the thresholds, I use criteria in the year before the policy was announced. To address concerns about possible differences between control and treatment firms, I use a firm panel data from 2004 to 2014 to show that the two groups were similar in pre-policy years. The results vary between foreign-owned and domestic firms in Vietnam. Eligible foreign-owned firms reported a large increase in profits in the two years after the policy ended (2010 and 2011), but then dissipated. I find no evidence to suggest that real factor inputs (e.g, labor or capital profits) led to the increased in profitability of foreign-owned firms. Instead, multinational firms could have shifted profits to Vietnam to take advantage of the tax policy. The continuation of the high profits in the two years after the policy ended suggests that foreign-owned firms may have experienced friction in profit-shifting across borders. Among domestic firms, I do not find evidence for changes in profits, capital, nor labor. Finally, although tax payments by foreign-owned firms increased, the net impact of the policy on tax payments is ambiguous because of the decrease in payments among domestic firms.
Appears in Collections:Economic development

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