Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity
41 Pages Posted: 6 Jun 2018 Last revised: 29 Nov 2018
Date Written: June 19, 2018
This paper quantifies the impact of effective corporate tax rates on aggregate total factor productivity (TFP). Using Chilean manufacturing data, we document a large dispersion in the effective tax rate faced by firms and a mass of firms facing a 0 percent tax rate. We incorporate these findings into a standard monopolistic competition model with effective corporate tax rates. We find that eliminating corporate tax rates increases TFP between 4 and 11 percent. We consider counterfactual policies in which all firms face the same tax rate and find a monotonically decreasing relationship between the level of the tax rate and TFP.
Keywords: Productivity, Corporate Tax, Misallocation
JEL Classification: D24, O47, O23, H25, H32.
Suggested Citation: Suggested Citation