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Corporate Responses to Size-Based Tax Rates in Lithuania

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  • Garriga,Pablo
  • De Gouvea Scot De Arruda,Thiago

Abstract

This paper studies how firms respond to differential, size-based tax rates using administrativetax data in Lithuania. Exploiting a notch in the tax schedule faced by corporations, it documents strongbehavioral responses to tax incentives— revenue elasticity is estimated at 0.35 and cost elasticity at −1.3, implying alarge total profit elasticity of 7.4. It then leverages the panel structure of the data to provide insights on thedynamic effects of these tax incentives. Firms located close to but below the notch report systematically lower revenuegrowth in the short term, but the effects dissipate over time.

Suggested Citation

  • Garriga,Pablo & De Gouvea Scot De Arruda,Thiago, 2023. "Corporate Responses to Size-Based Tax Rates in Lithuania," Policy Research Working Paper Series 10500, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10500
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