In most nations, developed and undeveloped alike, employers' associations advocate tax cuts as a strategy for increasing employment. The literature on public finance and Third World taxation has been sceptical of these claims, although a small literature within economics favouring tax cuts does exist. Neither side provides compelling empirical evidence for or against tax relief as a tool to generate employment. The present paper provides such evidence for Brazilian restaurants, hotels and barber/beauty shops in the period 1940–1980. After controls are introduced for the size of potential markets and the impact of other non-tax costs, tax rates have virtually no effect on employment. This is because many Third World firms are characterized by a constellation of forces that theoretically minimize the link between taxation and employment. Third World governments that seek to increase employment in strategic industries would be better off using their funds to create programmes designed to stimulate employment proactively.
AhmadE.SternN. (1989) Taxation for developing countries, in: HollisC.SrinivsanT. N. (Eds.) Handbook of Development Economics (New York: North-Holland), pp. 1006–92.
2.
AmedF. J. (2000) Historia dos Tributos no Brasil (São Paulo: SINASFRESP).
3.
AndersenA. (1976) Basic Business and Tax Structure in Brazil (Chicago: Arthur Anderson and Co.).
4.
AuerbachA. (1985) Theory of excess burden and optimal taxation, in: AuerbachA.FeldsteinM. (Eds.) Handbook of Public Economics (New York: North-Holland), pp. 61–127.
5.
BeckN.KatzJ. (1995) What to do (and not to do) with time series cross section data, American Political Science Review, 89, pp. 634–47.
6.
BeckerG. (1981) Treatise on the Family (Cambridge, Mass.: Harvard University Press).
7.
BirdR. (1992) Tax Policy and Economic Development (Baltimore: Johns Hopkins).
8.
BrowningH. L.SingelmanJ. (1975) The Emergence of a Service Society: Demographic and Sociological Aspects of the Sectoral Transformation of the Labor Force in the USA (Austin, TX: Population Research Center, University of Texas).
9.
BurgessR.SternN. (1993) Taxation and development, Journal of Economic Literature, 31, pp. 762–830.
10.
CarrollG.HannanM. (2000) Demography of Corporations and Industries, (Princeton, NJ: Princeton University Press).
Da SilveiraP. R. (1993) Vocational and managerial training for small firms: Case of SENAI in Brazil, in SpathB. (Ed.) Small Firms and Development in Latin America: Role of Institutional Environment, Human Resources and Industrial Relations (Geneva: International Institute for Labor Studies), pp. 80–92.
13.
Dal-RossoS. (1978) Growth of capitalism and the transformation of the labor force in Brazil, PhD dissertation, Sociology, University of Texas, Austin.
14.
GadreyJ. (1992) L'Economie des Services (Paris: La Découverte).
15.
HamermeshD. (1993) Labor Demand (Princeton, NJ: Princeton University Press).
16.
HannanM.FreemanJ. (1989) Organizational Ecology (Cambridge, Mass: Harvard University Press).
17.
HarbergerA. (1974) Taxation and Welfare (Boston: Little and Brown).
18.
HarrisonA.LeamerE. (1997) Labor markets in developing countries: An agenda for research, Journal of Labor Economics, 15, pp. S1–S19.
19.
HoogveltA. (1997) Globalization and the post colonial world: New political economy of development (Basingstoke, Hampshire: Houndmills).
20.
IBGE (Instituto Brasileiro de Geografia e Estatísticas) (1990) Estatísticas Históricas do Brasil (Rio de Janeiro: IBGE).
21.
IllerisS. (1996) Service Economy: Geographical Approach (New York: Wiley).
22.
KehoeT.Serra-PucheJ. (1983) Computational general equilibrium model with endogenous unemployment: Analysis of 1980 fiscal reform in Mexico, Journal of Public Economics, 22, pp. 1–26.
23.
KindlebergerC.HerrickB. (1977) Economic Development (New York: McGraw-Hill).
24.
KuznetsS. (1966) Modern Economic Growth: Rate, Structure and Spread (New Haven, CT: Yale University Press).
25.
LahózA.CaetanoJ. R. (2001) O Imposto Que Esmaga, Exame, 748(18), pp. 40–50.
26.
MarshallJ. N.WoodP. (1995) Services and Space: Key Aspects of Urban and Regional Development (Harlow: Longman Scientific).
27.
MartinsJ. D. S. (1997) Fronteira: A Degradação do Outro Nos Confins do Humano (São Paulo: Hucitec).
28.
MICT (Ministerio da Industria, do Comércio e do Turismo) (1998) Os Servicos No Brasil (Brasilia: MICT).
29.
MorrisonC.LecomteH. B. S.OudinX. (1994) Microenterprises and the Institutional Framework in Developing Countries (Paris: OECD).
30.
MusgraveR. (1959) Theory or Public Finance: A Study in Public Economy (New York: McGraw-Hill).
31.
ParksR. (1967) Efficient estimation of regression equations when disturbances are both serially and contemporaneously correlated, Journal of the American Statistical Association, 62, pp. 500–9.
32.
RabushkaA.BartlettB. (1985) Tax Policy and Economic Growth in Developing Nations (Washington: USAID Bureau for Program and Policy Coordination, Office of Economic Affairs).
33.
RakowskiC. (1993) Informal sector debate, in RakowskiC. (Ed.) Contrapunto: Informal Sector Debate in Latin America (Albany: State University of New York Press), pp. 11–50.
SandersT. (1985) Brazil's microbusiness law, USFI Reports, 26, pp. 1–6.
36.
SandmoA. (1985) Effects of taxation on saving and risk taking. in: AuerbachA.FeldsteinM. (Eds.) Handbook of Public Economics (New York: North-Holland), pp. 265–311.
37.
SEBRAE (1999) Fatores Condicionantes e Taxa de Mortalidade de Empresas (Brasilia: SEBRAE).
38.
ShovenJ.WhalleyJ. (1984) Applied general equilibrium models of taxation and international trade: An introduction and survey, Journal of Economic Literature, 23, pp. 1007–51.
39.
SmithJ. (1980) Female Labor Supply: Theory and Estimation (Princeton, NJ: Princeton University Press).
40.
SpathB., (Ed.) (1993) Small Firms and Development in Latin America: Role of Institutional Environment, Human Resources and Industrial Relations (Geneva: International Institute for Labour Studies).
41.
StallingsB., (Ed.) (1995) Global Change, Regional Response: New International Context of Development (New York: Cambridge University Press).
42.
SteinmoS. (1997) Why tax reform? Understanding tax reform in its political and economic context, Working Paper, Department of Economics, University of Colorado at Boulder, available at http://stripe.colorado.edu/∼steinmo/reform.html.
43.
StiglitzJ. (1969) Effects of income, wealth and capital gains taxation on risk taking, Quarterly Journal of Economics, 83, pp. 262–83.
44.
StiglitzJ. (1988) Economics of the Public Sector (New York: Norton).
45.
SurreyS. (1958) Tax administration in underdeveloped countries, University of Miami Law Review, 12, pp. 158–88.
46.
TellesE. (1988) Consequences of employment structure in Brazil: Earnings, sociodemographic characteristics and metropolitan area differences, PhD dissertation, Sociology, University of Texas, Austin.
47.
ThomasJ. J. (1992) Informal Economic Activity (Ann Arbor, Michigan: Michigan University Press).
48.
YoungR. (1994) Enterprise Scale, Economic Policy, and Development, International Center for Economic Growth, Occasional Paper 52, ICS Press, San Francisco.
