Corporate Taxes, Productivity, and Business Dynamism

57 Pages Posted: 24 Feb 2023 Last revised: 17 May 2023

See all articles by Andrea Colciago

Andrea Colciago

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); De Nederlandsche Bank - Research Department

Vivien Lewis

Research Centre

Branka Matyska

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: May 17, 2023

Abstract

We identify the effects of corporate income tax shocks on key US macroeconomic aggregates. In response to a corporate income tax cut, we find that: (i) labor productivity increases; (ii) entry increases with delay; (iii) exit increases; (iv) total labor increases by more than production labor. To rationalize these empirical findings, we build a New Keynesian model with idiosyncratic firm productivity, and entry and exit. Our model features productivity gains due to selection and cleansing along the entry and exit margins. Models with homogeneous firms fail to account for the selection and cleansing process and produce counterfactual results.

Keywords: corporate taxation, productivity, firm entry and exit

JEL Classification: E52, E58, D42, L16

Suggested Citation

Colciago, Andrea and Lewis, Vivien and Matyska, Branka, Corporate Taxes, Productivity, and Business Dynamism (May 17, 2023). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 512, Available at SSRN: https://ssrn.com/abstract=4366044

Andrea Colciago (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Vivien Lewis

Research Centre ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Branka Matyska

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

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