Journal of Industry, Competition and Trade

, Volume 10, Issue 3–4, pp 297–317 | Cite as

Effective Corporate Tax Rates and the Size Distribution of Firms

  • Almas Heshmati
  • Dan Johansson
  • Carl Magnus Bjuggren


We analyze the effects of effective corporate tax rates on the size distribution of firms. In modelling this relationship we account for conditional variables as well as unobservable time and industry effects. A number of hypotheses are tested concerning heterogeneity in the impact of effective corporate tax rates on the size distributions of firms with regard to firm size class, industry and time. The results are based on data covering the whole Swedish economy for the period 1973–2002. The descriptive results suggest that effective corporate tax rates differ by firm size, industry and over time. Application of t-tests demonstrate inequality in mean and variance of effective corporate tax rates between major size classes but not within major size classes: smaller firms report a higher effective corporate tax rate than larger firms. The t-tests also demonstrate inequality in mean and variance of effective corporate tax rates between industrial sectors: service sector reports a higher effective corporate tax rate than production sector. The regressions show effective corporate tax rates to have: a negative effect on the size distribution of large firms, negative effect on transportation, financing and service sector and a positive effect on manufacturing, electricity and on production sector. We conclude that effective corporate tax rates affect the size distribution of firms as well as the composition of industries.


composition of industries corporate taxes effective corporate tax rates size distribution of firms 

JEL Classification

D21 H25 H32 L11 


  1. Acs Z (ed) (1996) Small firms and economic growth: volume I and II. Edward Elgar, CheltenhamGoogle Scholar
  2. Acs Z (ed) (1999) Are small firms important? Their role and impact. Kluwer, DordrechtGoogle Scholar
  3. Alchian A (1950) Uncertainty, evolution and economic theory. J Polit Econ 58(3):211–221CrossRefGoogle Scholar
  4. Audretsch D (2002) The dynamic role of Small firms: evidence from the U.S. Small Bus Econ 18(1–3):13–40CrossRefGoogle Scholar
  5. Auerbach A, Hasset K (1992) Tax policy and business fixed investment in the United States. J Public Econ 47(2):141–170CrossRefGoogle Scholar
  6. Baltagi B (2003) Econometric analysis of panel data. Wiley, ChichesterGoogle Scholar
  7. Baumol W (1990) Entrepreneurship: productive, unproductive and destructive. J Polit Econ 98(5):893–921CrossRefGoogle Scholar
  8. Baumol W (2004) The free-market innovation machine: analyzing the growth miracle of capitalism. Princeton University Press, PrincetonGoogle Scholar
  9. Birch D (1979) The job generation process. MIT program on neighbourhood and regional change, Massachusetts Institute of Technology, CambridgeGoogle Scholar
  10. Birch D (1987) Job creation in America: how our smallest companies put the most people to work. Free, New YorkGoogle Scholar
  11. Birch D (2006) What have we learned? Foundations and Trends in Entrepreneurship 2(3):197–202Google Scholar
  12. Björnskov C, Foss N (2006) Economic freedom and entrepreneurial activity. Some cross country evidence. Public Choice 134(3–4):307–328Google Scholar
  13. Boettke P, Coyne C (2009) Context matters: Institutions and entrepreneurship. Foundations and Trends in Entrepreneurship 5(3):135–209CrossRefGoogle Scholar
  14. Braunerhjelm P, Thulin P (2009) Agglomeration, relative wage costs and foreign direct investment: evidence from Swedish MNCs 1974–1998. J Ind Compet Trade 9(3):197–217CrossRefGoogle Scholar
  15. Cerda R, Larrain F (2010) Corporate taxes and the demand for labor and capital in developing countries. Small Bus Econ 34(2):187–201CrossRefGoogle Scholar
  16. Cressy R, Olofsson C (1997) The financial conditions for Swedish SMEs: survey and research agenda. Small Bus Econ 9(2):179–192CrossRefGoogle Scholar
  17. Cullen J, Gordon R (2007) Taxes and entrepreneurial risk-taking: theory and evidence for the U.S. J Public Econ 91(7–8):1479–1505CrossRefGoogle Scholar
  18. Cummins J, Hasset K, Hubbard G (1996) Tax reforms and investment: a cross-country comparison. J Public Econ 62(1–2):237–273CrossRefGoogle Scholar
  19. Daunfeldt S-O, Praski-Ståhlgren U, Rudholm N (2010) Do high-taxes lock-in capital gains? Evidence from a dual tax system. Public Choice forthcomingGoogle Scholar
  20. Davidsson P, Henrekson M (2002) Determinants of the prevalence of start-ups and high-growth firms. Small Bus Econ 19(2):81–104CrossRefGoogle Scholar
  21. De Meza D, Webb D (1999) Wealth, enterprise and credit policy. Econ J 109(455):153–163CrossRefGoogle Scholar
  22. Dembour C (2008) Competition for business location: a survey. J Ind Compet Trade 8(2):89–111CrossRefGoogle Scholar
  23. Djankov S, La Porta R, Lopez-de-Silanes F, Schleifer A (2002) The regulation of entry. Q J Econ 117(1):1–37CrossRefGoogle Scholar
  24. Djankov S, Ganser T, McLiesh C, Ramalho R, Schleifer A (2008) The effect of corporate taxes on investment and entrepreneurship. Working Paper No 13756. NBER, CambridgeGoogle Scholar
  25. Edvinsson R (2005) Growth, accumulation, crisis: with new macroeconomic data for Sweden 1800–2000. Doctoral dissertation in Economic History, Stockholm UniversityGoogle Scholar
  26. Feldstein M, Slemrod J (1980) Personal taxation, portfolio choice, and the effect of the corporation income tax. J Polit Econ 88(5):854–866CrossRefGoogle Scholar
  27. Fukao M, Hanazaki M (1987) Internationalization of financial markets and the allocation of capital. OECD Econ Stud 8:35–92Google Scholar
  28. Hall R, Jorgenson D (1967) Tax policy and investment behaviour. Am Econ Rev 57(3):391–414Google Scholar
  29. Hasset K, Hubbard G (2002) Tax policy and business investment. In: Auerbach A, Feldstein M (eds) Handbook of Public Economics, vol III, (pp. North-Holland, Amsterdam, pp 1293–1343Google Scholar
  30. Henrekson M (1996) Företagandets villkor: spelregler för sysselsättning och tillväxt [Entrepreneurial and business conditions: Rules for employment and growth]. SNS Förlag, StockholmGoogle Scholar
  31. Henrekson M, Jakobsson U (2001) Where Schumpeter was nearly right – The Swedish model and capitalism, socialism and democracy. J Evol Econ 11(3):331–358CrossRefGoogle Scholar
  32. Henrekson M, Jakobsson U (2005) The Swedish model of corporate ownership and control in transition. In: Huizinga H, Jonung L (eds) Who will own Europe? The Internationalisation of asset ownership in Europe. Cambridge University Press, CambridgeGoogle Scholar
  33. Henrekson M, Johansson D (1999) Institutional effects on the evolution of the size distribution of firms. Small Bus Econ 12(1):11–23CrossRefGoogle Scholar
  34. Hsiao C (2005) Analysis of panel data. Cambridge University Press, CambridgeGoogle Scholar
  35. Johansson A, Magnusson L (1998) LO andra halvseklet. Fackföreningsrörelsen och samhället [LO and the second half century. The trade-union movement and society]. Atlas, StockholmGoogle Scholar
  36. Jorgenson D (1963) Capital theory and investment behavior. Am Econ Rev 53(2):247–259Google Scholar
  37. King M, Fullerton D (1984) The taxation of income from capital: a comparative study of the United States, the United Kingdom, Sweden and West Germany. University of Chicago Press, ChicagoGoogle Scholar
  38. Kirchhoff B (1994) Entrepreneurship and dynamic capitalism. Praeger, LondonGoogle Scholar
  39. La Porta R, Lopez-De-Silanes F, Shleifer A, Vishny R (2000) Agency problems and dividend policies around the world. J Finance 55(1):1–33CrossRefGoogle Scholar
  40. North D (1990) Institutions, institutional change, and economic performance. Cambridge University Press, CambridgeGoogle Scholar
  41. Nyström K (2008) The institutions of economic freedom and entrepreneurship: evidence from panel data. Public Choice 136(3–4):269–282CrossRefGoogle Scholar
  42. Robbins K, Pantuosco L, Parker D, Fuller B (2000) An empirical assessment of the contribution of small business employment to U.S. state economic performance. Small Bus Econ 15(4):293–302CrossRefGoogle Scholar
  43. Schivardi F, Torrini R (2008) Identifying the effects of firing restrictions through size-contingent differences in regulation. Labour Econ 15(3):482–511CrossRefGoogle Scholar
  44. Södersten J (1993) Sweden. In: Jorgenson D, Landau R (eds) Tax reform and the cost of capital: an international comparison. The Brookings Institution, Washington D.C., pp 270–299Google Scholar
  45. Storey D (1994) Understanding the small business sector. Routledge, LondonGoogle Scholar
  46. Van Praag M, Versloot P (2007) What is the value of entrepreneurship? A review of recent research. Small Bus Econ 29(4):351–382CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  • Almas Heshmati
    • 1
  • Dan Johansson
    • 2
  • Carl Magnus Bjuggren
    • 3
  1. 1.Department of Food and Resource Economics, College of Life Sciences and BiotechnologyKorea UniversitySeoulKorea
  2. 2.The Ratio InstituteStockholmSweden
  3. 3.Department of Management and EngineeringLinköping UniversityLinköpingSweden

Personalised recommendations