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Title: Determining the Incidence of Direct Taxation on the United Kingdom Small and Medium-Sized Enterprise Sector
Author: Sloan, Brian Andrew
ISNI:       0000 0004 2681 060X
Awarding Body: The University of Manchester
Current Institution: University of Manchester
Date of Award: 2007
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The objective of this thesis is to develop a means of quantifying the level of direct taxation resulting from the activities of the United Kingdom's small and medium sized enterprise sector, over a six year period 1999-2000 to 2004-05. As many developed nations have accepted the argument that a prosperous small firms sector can be a contributory factor to economic growth (Evans and Leighton, 1989) public policy has been used to promote small firm ownership and business growth. The value and success of such policies in the United Kingdom has been questioned (Storey, 1994) and techniques have been developed to identify those firms that might unintentionally benefit as a consequence of such policy interventions (Lenihan, 2004). Of particular interest in this research is the use of tax policy to promote small firm ownership and growth. Within the academic literature there is considerable debate concerning the use of the tax system for this purpose; Johnson (1990) arguing that it is appropriate to tax favour small firms on the basis of the externalities that these firms yield to the economy, yet due to their size do not capture themselves. Conversely, Holtz-Eakin (1995 and 2000) argues that such intervention is inappropriate on the basis of the consequent inequity and inefficiencies that are created in the tax system. Despite the use of tax policy to promote small firm ownership and growth, little is known about the direct tax revenues resulting from the activities of these firms in the United Kingdom. Tax modelling is a technique that can address such deficiencies in the literature and support the value judgements of policymakers (Creedy, 2001). Accordingly a model· is developed here that applies the parameters of the tax system to a unique dataset, capturing the heterogeneity of the small and medium sized enterprise sector, dividing it into strata based on legal form, industrial sector and employment size. This allows the size and distribution of direct tax liabilities to be assessed across the sector. As a consequence this thesis contributes to knowledge with an empirical innovation, capable of providing ex ante evaluation of policy, one of the exciting 'frontiers' of policy analysis (Lenihan, Hart and Roper, 2007; page 318). The main finding of this research is that the small and medium sized enterprise sector contributed £102.0bn in direct tax revenues for the year 2004-05 (22.6% of all government tax receipts); companies contributing £82.3bn and unincorporated firms £19.7bn. Whilst the distribution of these tax liabilities across this sector of the economy is largely dependent on the profitability and number of firms in each industrial sector, this research quantifies these revenues for the first time. The significance of the research is that in the absence of access to tax authority data, a method has been developed for estimating tax revenues at the level of the firm by mimicking the computations of the tax system, validating the outcomes at the level of the firm for taxes on profits and utilising statistical techniques to control for bias in the data sources to aggregate taxes to the level of the economy. The restrictions on the availability of tax authority data also applies across government departments and therefore this model is able to provide ex ante assistance to policymakers regarding a range of issues related to the small firms sector, some applications of which are presented in the penultimate chapter of this thesis.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available