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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2023
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Call for Papers: PIER Research Workshop 2023
Discussion Paperdp
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17 February 2021
20211613520000000

Tax Incentives to Appear Small: Evidence from Thai Firms and Corporate Groups

Abstract

This paper studies the effects of SME tax incentives on firm behaviors. We use firm-level panel data of all registered firms in Thailand to analyze the effects of a large reduction in corporate income tax rates for SMEs in 2011. First, we find that firms responded strongly to the SME tax incentive as indicated by a sharp bunching of firms just below the threshold after the incentive was introduced. The responses were concentrated among firms with positive EBIT, implying a financial motive for firms to remain small. Second, the bunching was prominent for stand-alone firms, where we observe slower revenue growth for those below the threshold. Third, we do not observe bunching for corporate-group firms, but we find evidence of tax-motivated profit shifting among them instead, especially among firms in small groups with weak corporate governance. Our analysis suggests that transfer pricing was likely a primary channel. Finally, despite the unintended consequences, we find that the incentive significantly raised the probability of firm's survival and encouraged new firm registration, as the policy intended.

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The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Tags: bunchingtax incentivesbusiness groupcorporate taxsize-dependent policytax evasion
Chanont Banternghansa
Chanont Banternghansa
Analysis Group
Athiphat Muthitacharoen
Athiphat Muthitacharoen
Chulalongkorn University
Archawa Paweenawat
Archawa Paweenawat
Puey Ungphakorn Institute for Economic Research
Krislert Samphantharak
Krislert Samphantharak
University of California San Diego

Puey Ungphakorn Institute for Economic Research

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Email: pier@bot.or.th

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