Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1531: Local Corporate Taxation and Business Activity

Jacob Lundberg () and Gabriella Massenz ()
Additional contact information
Jacob Lundberg: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden, and UCFS
Gabriella Massenz: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden, and UCES and FIT

Abstract: We use a natural experiment and administrative data to study the effect of corporate tax cuts on business activity. For identification, we exploit the abolition of municipal corporate income taxation in Sweden in 1985, which created variation in corporate tax changes faced by different municipalities. Our findings indicate an expansion of business activity and employment in large firms following a tax cut. However, we find no significant impact on these outcomes for small firms. In addition, firm entry rates increase in municipalities experiencing the largest tax cuts.

Keywords: Corporate taxation; Business activity; Employment; Firm entry

JEL-codes: G31; G38; H21; H25

Language: English

30 pages, August 14, 2025

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