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Loss-offset provisions in the corporate tax code and misallocation of capital

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  • Kaymak, Barış
  • Schott, Immo

Abstract

The corporate tax code allows corporations to write off operating losses against past or future tax obligations, resulting in effective tax rates that are firm-specific and dependent on the history of the firm’s performance. Since losses partly reflect a drop in productivity, which is generally persistent, firms with higher expected productivity face higher tax rates. We analyze the distortionary effects of loss-offset provisions on investment and assess the output loss implied by the misallocation of capital. Replacing the corporate income tax with a revenue-neutral value-added tax which equates tax rates across firms leads to a 13.9% increase in aggregate output.

Suggested Citation

  • Kaymak, Barış & Schott, Immo, 2019. "Loss-offset provisions in the corporate tax code and misallocation of capital," Journal of Monetary Economics, Elsevier, vol. 105(C), pages 1-20.
    • Handle: RePEc:eee:moneco:v:105:y:2019:i:c:p:1-20
    DOI: 10.1016/j.jmoneco.2019.04.011
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Loss-Offset Provisions in the Corporate Tax Code and Misallocation of Capital
      by Christian Zimmermann in NEP-DGE blog on 2019-10-25 21:55:30

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    Cited by:

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    3. Venkateswaran, Venky, 2019. "Comments on ‘Loss-offset provisions in the corporate tax code and misallocation of capital’," Journal of Monetary Economics, Elsevier, vol. 105(C), pages 21-23.
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    5. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
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    More about this item

    Keywords

    Corporate taxation; Capital misallocation; Tax reform;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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