Economics seminar: Capital allowances and investment: evidence from UK corporate tax returns

Event Date: 26 February 2014

Giorgia Maffini,
University of Oxford

Time: 16.15-17.30

Dept. of Economics

Rm 2.11 Architecture Bldg

Abstract:

In 1998, the UK Government introduced first year investment allowances for small and medium sized firms (SMEs) with the intent of encouraging investment of SMEs. In this paper, we investigate how the FYAs have affected investment of SMEs in the UK. We exploit the exogenous change in the qualifying threshold for the FYAs in 2004. For financial years ending on or after the 30th January 2004, the thresholds for qualifying for FYAs have been increased. This implies that some firms which did not qualify for the scheme until 2003 did qualify from 2004 onwards. This gives rise to a treatment group (firms qualified for the FYAs only after 2004) and two control groups (firms that always qualified for the FYAs and the second control group consists of firms that were never eligible for the FYAs). For the analysis, we merge two datasets. The first is the confidential HMRC corporate tax return dataset which gathers the universe of UK corporate tax returns between 2001/02 and 2009/10.  The second dataset employed is the FAME dataset which collects accounting information on UK companies. FAME is employed to control for characteristics of the firm such as the number of employees and total assets. These two variables are needed to define the control and the treatment groups since the entitlement to FYA depends on turnover, assets, and number of employees.

Published: 30 January 2014