Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208198 
Year of Publication: 
2019
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1050
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
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.
Subjects: 
firm size
general fiscal policies
labor regulation
productivity
tax evasion and avoidance
JEL: 
H26
H30
J8
L11
L51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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