Essays on firm responses to tax policy
Abstract
This compilation thesis studies firm responses to tax policy. The essays use empirical methods and administrative firm-level data to study issues in public and labor economics: how do firms adjust their behavior to incentives caused by policy. The results can provide information to guide the design of public policy.
The first essay studies the effects of a first-employee subsidy in Finland. In 2007—2011 Finland provided a regional subsidy for hiring the first employee. The subsidy was supposed to encourage entrepreneurs to become employers, as over half of firms in Finland do not have employees. Using the geographic differences in the eligibility to the subsidy and full-population firm data, I study the effects on the probability of becoming an employer and several other firm outcomes. I find a zero effect on average. This seems to be explained by low take-up of the subsidy: only 2% of eligible firms that became employers used the subsidy. Descriptive evidence supports that restricting the subsidy to full-time employees and low awareness decreased the take-up and, hence, the effectiveness of the subsidy.
The second essay describes a plan for a government-run recruitment subsidy experiment. The randomized experiment is supposed to evaluate the effects of a recruitment subsidy on the probability of becoming an employer. Following the evidence from the first essay, the subsidy is not restricted to a type of employment contract and the subsidy covers a percentage of the wage costs in the first year up to a threshold. Therefore, expected take-up and effects are larger, and the results of the experiment can complement the knowledge from the first essay. The essay makes use of administrative firm-level data to plan the experiment and calculate the statistical power.
The third essay studies how firms respond to tax audits. We combine data from the Finnish tax administration on all tax audits conducted on firms in 2003—2016 to annual firm tax returns. This unique, novel data allows us to follow the tax reporting behavior of firms before and after being audited. By comparing the development of the audited firms to similar non-audited firms with similar prior development, we find that the audited firms significantly increase reported profits and revenue persistently after an audit. This means that auditing more firms could increase tax revenue in the long run, by increasing firms’ tax compliance.
Publication Information
Nivala, A. (2021), Essays on firm responses to tax policy, Annales Universitatis Turkuensis, Series E 79.
- ISSN: 2343-3159 (Print), 2343-3167 (Online)
- ISBN: 978-951-29-8584-5 (Print), 978-951-29-8585-2 (Online)
- Press Release in Finnish