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Working Paper
Tax Heterogeneity and Misallocation
There is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies. Using US firm-level balance sheet data alongside measures of effective marginal tax rates, we find a positive correlation between tax rates and factor productivity, suggesting that tax asymmetry exacerbates the distortions from other ...