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

Dinerstein, Marcos and Patiño Peña, Fausto, Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity (June 19, 2018). Available at SSRN: or

Marcos Dinerstein (Contact Author)

Penn Wharton Budget Model ( email )

440 1st Street NE
Suite 810
Washington, DC 20001
United States

Fausto Patiño Peña

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States


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