Killing a second bird with one stone? Promoting firm capital growth and exports through tax policy

Abstract

Is a preferential tax regime for small and medium enterprises an eective tool to sustain countries’ extensive margins of trade? This paper answers this question by exploiting a policy experiment in France. We find that the introduction of a reduced corporate tax (CT) rate promotes SMEs’ capital accumulation, and through this channel, their export participation. Our estimates show that a 50% reduction in the CT rate increases export propensity of SMEs between 8 and 15%. JEL classification: C21 C26 F14 H25 D24/D92