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The Impact of COVID-19 on Formal Firms: Micro Tax Data Simulations across Countries

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  • Bachas,Pierre Jean
  • Brockmeyer,Anne
  • Semelet,Camille Marine

Abstract

How is the COVID-19 pandemic affecting firm profits and tax payments in developingcountries This paper uses administrative corporate tax records from 10 low- and middle-income countries around theworld to provide plausible estimates. Modeling the lockdown-triggered revenue shock with simple and transparentassumptions, the analysis predicts that less than half of all firms will remain profitable by the end of 2020, about5-10 percent of the formal aggregate annual payroll will be lost, and firm exit rates will double. As a result, it isexpected that tax revenue remitted by the corporate sector will fall by at least 1.5 percent of baseline gross domesticproduct. Differences in sectoral composition and firms' cost structures generate heterogeneity in the results acrosscountries: wage subsidies are less effective in low-income countries and government revenue losses are smaller.

Suggested Citation

  • Bachas,Pierre Jean & Brockmeyer,Anne & Semelet,Camille Marine, 2020. "The Impact of COVID-19 on Formal Firms: Micro Tax Data Simulations across Countries," Policy Research Working Paper Series 9437, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9437
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    References listed on IDEAS

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    1. Laura Alfaro & Oscar Becerra & Marcela Eslava, 2020. "EMEs and COVID-19: Shutting Down in a World of Informal and Tiny Firms," NBER Working Papers 27360, National Bureau of Economic Research, Inc.
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    6. Efraim Benmelech & Nitzan Tzur-Ilan, 2020. "The Determinants of Fiscal and Monetary Policies During the Covid-19 Crisis," NBER Working Papers 27461, National Bureau of Economic Research, Inc.
    7. Joel Slemrod, 2019. "Tax Compliance and Enforcement," Journal of Economic Literature, American Economic Association, vol. 57(4), pages 904-954, December.
    8. Loayza,Norman V. & Pennings,Steven Michael, 2020. "Macroeconomic Policy in the Time of COVID-19 : A Primer for Developing Countries," Research and Policy Briefs 147291, The World Bank.
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    Citations

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    Cited by:

    1. Daiji Kawaguchi & Sagiri Kitao & Manabu Nose, 2022. "The impact of COVID-19 on Japanese firms: mobility and resilience via remote work," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1419-1449, December.
    2. Aga,Gemechu A. & Maemir,Hibret Belete, 2021. "COVID-19 and African Firms : Impact and Coping Strategies," Policy Research Working Paper Series 9642, The World Bank.
    3. Olga Pilipczuk, 2021. "Determinants of Managerial Competences Transformation in the Polish Energy Industry," Energies, MDPI, vol. 14(20), pages 1-27, October.
    4. Santoro, Fabrizio & Mascagni, Giulia, 2023. "Visual nudges: How deterrence and equity shape tax attitudes and behaviour in Rwanda," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    5. repec:idq:ictduk:17602 is not listed on IDEAS
    6. Alessio Tomelleri & Anna Gloria Billé, 2023. "Do micro-enterprises ask for local support measures? Evidence after the COVID-19 pandemic," FBK-IRVAPP Working Papers 2023-04, Research Institute for the Evaluation of Public Policies (IRVAPP), Bruno Kessler Foundation.
    7. Wei Cui & Jeffrey Hicks & Max Norton, 2022. "How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1321-1347, October.
    8. Jacques Bughin, 2023. "Are you resilient? Machine learning prediction of corporate rebound out of the Covid‐19 pandemic," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1547-1564, April.

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