Microeconometric analysis of the effect of reduced corporate income tax implementation on employment in Turkey

At the end of the 20th century, the wide and rapid spread of cross-border trade of goods and services, international capital flow and technological developments have increased tax competition between countries. This competition has brought along the search for companies to reduce their fiscal liabilities. The increasing effect of tax privileges on investment decisions has increased the importance of tax incentive systems. One of the instruments of the tax incentive system is the implementation of the reduced tax rate. In Turkey, the reduced corporate tax implementation included in the article 32/A added to the KVK numbered 5520 with the 9th article of the law numbered 5838 was implemented in 2009. With this implementation, it has aimed to encourage investments, to eliminate regional development differences, to support R&D activities, to increase large-scale investments that will increase international competitiveness, to increase foreign direct investment, to increase production and employment. In this study, the effect of regional differences in corporate tax reduction rates on employment within the scope of the reduced corporate tax application, that put into effect in 2009, has been analyzed using the "TurkStat Household Labor Force Survey Micro Dataset" for the years 2004-2021 in Turkey. In the impact analysis of this tax policy, the Difference in Differences (DID) and Difference in Differences with Propensity Score Matching (DID-PSM) methods have been used. The effects of reduced corporate tax on employment have been empirically demonstrated. The findings show that the reduced corporate tax implementation has a significant and positive effect on employment.