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The Influence of Tax Incentive and Market Regulation Requirements on IT Companies: Empirical Evidence from the Brazilian Industry

The effectiveness of public policy measures to foster the competitiveness of Information Technology (IT) industries has been intensively debated nowadays, since a multitude of policy instruments can be applied to different business segments and time frames, with varying levels of legal security and expected results. In this paper, we investigate the influence of some tax incentive and market regulation requirements on Brazilian IT companies, using a data set containing 942 firms. We perform empirical studies concerning the influence of two public policy measures on the labor productivity of such companies, estimated through their annual gross revenue per worker ratio. We show that there has been a positive correlation of electronic tax recognition and bookkeeping regulation measures with the labor productivity growth of locally owned suppliers of enterprise resource planning software. Likewise, we show that, on average, the productivity growth of foreign capital hardware manufacturers, while payroll tax reduction benefits were in force, was higher than in other periods. These studies illustrate the temporal and business segment influence that technology requirements might have on the productivity of IT companies when considered in public policy measures and also suggest a future research agenda.