The Effects of Corporate Taxes on Small Firms

We study the impact of corporate taxes on firm-level investments and business activity by exploiting a 6 percentage-point reduction in the corporate tax rate in Finland. We use detailed administrative data and a difference-in-differences method comparing small corporations (tax rate cuts) to similar partnerships (no change in taxes). We find no significant average investment responses but do observe an average increase in annual sales and variable costs. These effects are driven by more cash-constrained firms and firms where the main owner actively works in the firm