Investment tax incentives and firm productivity: evidence from Thailand

ABSTRACT

Developing countries often employ tax incentives to promote investment; however, evidence on their productivity impact is scarce. I use a matched difference-in-difference approach and a panel dataset of Thai firms to investigate the impact of investment tax incentives on firms’ productivity and illustrate how it varies across firms in different competition environments. I find that the incentives significantly raise productivity for the treated firms relative to the control firms. I also show that the incentives could boost productivity to a larger extent when targeted towards higher-competition sectors.

KEYWORDS:

• Tax incentives
• productivity
• competition
• developing country

JEL CLASSIFICATION:

• D24
• H25
• H32

Acknowledgments

This work receives financial support from the Thailand Research Fund [grant number RSA6180012].

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The currency conversion is based on the rate in June 2021 (32 baht/USD).

² I use the dataset containing the universe of Thai firms in 2012 (from Bureau van Dijk’s Orbis). The measure is computed at two-digit ISIC level.

Additional information

Funding

This work was supported by the Thailand Research Fund [RSA6180012].