Nexus between Corporate Tax Rate and Employment Growth: Empirical Evidence from Bangladesh

This study examines the relationship between corporate tax rate imposed on publicly traded companies and the corporate employment growth rate in Bangladesh. This paper will conceptualize the discernment that the corporate tax causes a shift to the corporate capital sector to the non-corporate sector that leads to a reduction in employment growth. This study employed Autoregressive Distributed Lag (ARDL) bounds testing methods for checking the cointegration among the variables using time series data from 1991-2018. The main purpose of the study is to investigate the long run and short-term relationship between publicly traded corporate tax rate and employment growth rates. The corporate tax imposed by the government to the publicly traded company has a negative and significant effect on employment growth rate of the corporation in both long run and short run. The estimated results of the model show that the corporate tax rate, population growth rate, and openness to market are the factors of employment growth in Bangladesh. The main outcomes of this study are that corporate tax rate, population growth rate, and market size are highly significant in the long run. Still, openness to market and inflation are insignificant in the long term. Error Correction Model (ECM) coefficient of corporate tax rate shows a 38 percent speed of adjustment in a year. The study recommends maintaining equitable and close linkage among corporate tax rates, population growth rate, and market size are essential to boost the employment growth rate in the publicly traded corporate sector in Bangladesh.