Publication: Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity
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2023-04-11
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2023-04-11
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This paper quantifies the impact of effective corporate tax rates on aggregate total factor productivity. Using Chilean manufacturing data, the paper documents a large dispersion in the effective tax rate faced by firms and a mass of firms facing a 0 percent tax rate. These empirical patterns are incorporated into a standard monopolistic competition model with corporate tax rates. The paper’s quantitative findings show that the TFP gains between the economy implied by the Chilean tax code of 1998–2007 and a hypothetical economy without effective corporate tax rate inefficiencies are between 4 and 11 percent. The paper considers counterfactual policies in which all firms face the same tax rate and finds a monotonically decreasing relationship between the level of the tax rate and total factor productivity.
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“Dinerstein, Marcos; Patiño Peña, Fausto. 2023. Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity. Policy Research Working Papers; 10394. © World Bank. http://hdl.handle.net/10986/39660 License: CC BY 3.0 IGO.”
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