Effects of temporary corporate income tax cuts: Evidence from Vietnam

Abstract

Using a quasi-experimental design and panel data from 2004 to 2014, I estimate how temporary 30% corporate income tax cuts affected firm investment, employment, profits, and tax revenue during the Global Financial Crisis in Vietnam. I find that investment increased during the policy year and came back to its pre-policy level after the policy ended. The evidence does not suggest there were any significant changes in employment. Reported profits of eligible foreign-owned firms doubled in the policy year and remained high after the policy ended. I find no evidence that profits of foreign-owned firms increased because of changes in labor or capital. Instead, multinational firms likely shifted reported profits to take advantage of the tax policy. Tax payments by foreign-owned firms increased, while those by domestic firms decreased.