Not(ch) Your Average Tax System : Corporate Taxation under Weak Enforcement
How should developing countries tax corporate income? This paper studies this question in Costa Rica, where firms face discontinuously higher average tax rates on profits when their revenue marginally increases. The paper combines a discontinuity a...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/174111531402052903/Not-ch-your-average-tax-system-corporate-taxation-under-weak-enforcement http://hdl.handle.net/10986/29997 |
| Summary: | How should developing countries tax
corporate income? This paper studies this question in Costa
Rica, where firms face discontinuously higher average tax
rates on profits when their revenue marginally increases.
The paper combines a discontinuity and a bunching design to
estimate the profit elasticity and separate it into revenue
and cost elasticities. Faced with higher tax rates, firms
slightly reduce revenue but considerably increase costs,
generating a large elasticity of profits. In this context,
the revenue maximizing rate for profit taxation is below 25
percent and broadening the tax base while lowering the rate
can increase revenue for these firms by 80 percent. |
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