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Productivity, Misallocation, and Special Tax Regimes in the Dominican Republic

Author

Listed:
  • Azuero, Rodrigo
  • Bosch, Mariano
  • Cardoza, Marvin
  • Sánchez-Navarro, Dennis

Abstract

This paper advances understanding of the relationship between tax policy and productivity, taking advantage of unique data from the Dominican Republic to document a significant negative impact of tax regulations on total factor productivity (TFP). It begins by estimating productivity using administrative records provided by the tax authorities. Then, it estimates the extent to which misallocation of resources might be limiting TFP using the Hsieh and Klenow (HK) methodology. Finally, it analyzes the tax regulation and provides suggestive evidence about how some provisions might be contributing to the misallocation of resources observed in the Dominican Republic. The paper finds that if misallocation of resources is eliminated from the economy, TFP will increase by a factor of 3.5. Several regulations generate discontinuities in the average rate of taxation, and tax reductions designed for small businesses are actually used by large and unproductive firms, which may be contributing to the overall misallocation observed in the Dominican Republic.

Suggested Citation

  • Azuero, Rodrigo & Bosch, Mariano & Cardoza, Marvin & Sánchez-Navarro, Dennis, 2019. "Productivity, Misallocation, and Special Tax Regimes in the Dominican Republic," IDB Publications (Working Papers) 9823, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:9823
    DOI: http://dx.doi.org/10.18235/0001888
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    More about this item

    Keywords

    firm size; general fiscal policies; labor regulation; productivity; tax evasion and avoidance;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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