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Firms at the productivity frontier enjoy lower effective taxation

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  • David Bartolini

Abstract

Slow productivity growth in advanced economies holds back income gains and therefore improvements in well-being. Sluggish productivity gains in aggregate hide a growing gap between firms at the frontier, which display sustained productivity growth, and the rest of firms whose productivity stagnates. The empirical analysis – based on firm-level data for the period 1998–2014 – uncovers the existence of a tax burden gap alongside the productivity gap: firms at the frontier pay less for each dollar of profits than lagging firms. This heterogeneous impact of taxation may hinder productivity diffusion, as it reduces incentives (and opportunities) for lagging firms to catch up with the frontier. The negative impact of taxation is particularly important when associated with cash constraints, weak demand and other framework conditions (e.g. labour market legislation, trade openness). The analysis shows that complementing tax incentives with policies to ease cash constraints would help to narrow the productivity gap.

Suggested Citation

  • David Bartolini, 2018. "Firms at the productivity frontier enjoy lower effective taxation," OECD Economics Department Working Papers 1475, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1475-en
    DOI: 10.1787/b102e5fc-en
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    Cited by:

    1. Ana María Iregui-Bohórquez & Ligia Alba Melo-Becerra & Antonio José Orozco-Gallo, 2020. "Corporate taxes and firms' performance: A meta-frontier approach," Borradores de Economia 1116, Banco de la Republica de Colombia.
    2. Boris Cournède & Jean-Marc Fournier & Peter Hoeller, 2018. "Public finance structure and inclusive growth," OECD Economic Policy Papers 25, OECD Publishing.
    3. Oguzhan Akgun & Boris Cournède & Jean-Marc Fournier, 2017. "The effects of the tax mix on inequality and growth," OECD Economics Department Working Papers 1447, OECD Publishing.
    4. Cláudia Braz & Maria Manuel Campos & Sónia Cabral, 2022. "A micro-level analysis of corporate income taxation in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    access to credit; effective business taxation; market regulation; Productivity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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