The real and financial effects of local corporate tax increases: evidence from linked firm–bank data
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Working paper using Portuguese data: increases in the municipal surcharge on corporate income tax tighten firms' financing and reduce sales, employment and productivity.
Key points
- Following the increases, liquidity falls, implicit interest rates and arrears rise, and debt maturities shorten
- Larger effects on small firms; more closures and relocations, with no gains in neighbouring municipalities
Who is affected
Research on taxation and corporate finance
Plain-language version
An ECB study using data from Portugal looks at what happens when town councils raise their surcharge on corporate tax, the tax companies pay on profits. Firms end up with less cash, find it harder to borrow and then sell less, hire less and close more often. Small businesses are hit hardest, which also shows up in local jobs.
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Summary produced with artificial intelligence from the official publication. It may contain errors: always check the original document.
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