Browsing by Author "Jouste, Maria"

The Finnish government proposed the domestic help services (DHS) tax credit at the first time in 1997. The government had many reasons for introducing the tax credit. One of the motivations was to increase demand of services in tax credited industries. The Finnish domestic help services tax credit system has been changed many times between 2001 and 2014. In this thesis I concentrate on the reforms in 2009 and 2012. I examine the effects of these reforms on demand for and consumer prices of services. Theory of tax incidence predicts that a reduction of the domestic help services tax credit should decrease consumer prices and therefore also change demand for services. I apply a regression differences-in-differences (DD) method to investigate the theory prediction on demand for services. I use Finnish firms as a treatment group and Swedish firms as a control group. I utilize firms’ value added tax (VAT) exclusive turnover to estimate the quantities of purchased services. The key assumption of the DD approach is that the treatment group and the control group have similar turnover trends in the absence of the treatment. This assumption is fulfilled in my analysis. The results on turnover vary between years. The results of the DHS tax credit reform in 2012 indicate that firms’ turnover reduced from 1.09 % to 2.32 % depending on firms’ location and industry. The results then support the theory predictions. On the other hand, the results of the reform in 2009 are not statistically significant. To analyze the price responses, I exploit the fixed effects (FE) method which answers the question: Do the consumer prices of services change due to the reform or do they change anyway despite the reform? The estimation results of price responses show that the DHS tax credit reduction in 2012 increased consumer prices of cleaning services by 2.1 % just after the reform in the beginning of 2012 and by 5.3 % about year after the reform. Thus the results do not respond to theory predictions of tax incidence. I have comprehensive data from Finnish and Swedish Tax Administration. Data contains all firms liable for VAT at the monthly level and income declaration data of firms and the DHS tax credit applications data at the yearly level. Data covers years from 2006 to 2013. I also use the survey data of consumer prices of cleaning services in the analysis of price responses. This study contributes previous literature of the DHS tax credit by conducting the first econometric analysis of the Finnish tax credit system which uses the DD approach and both Finnish and Swedish data. However, I cannot provide any policy recommendations because the quality of my empirical results is not sufficient.