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Applied Microeconomics/IO Seminar

Martin Rotemberg, New York University
Friday, March 13, 2020
10:00-11:30 AM
301 Lorch Hall Map
Corporate tax codes can have notches; values where after-tax profits decrease in before-tax sales. Firms endogenously respond to notches, leading to excess mass in the firm-size distribution. We study a 1997 policy reform in which the French government increased profit taxes by 15% for firms with over 50 million Francs in turnover. We use two distinct and complementary approaches to estimate the extent of tax avoidance: (a) using firms far away from (and therefore unlikely to be responsive to) the tax notch in the same year and (b) the entire firm size distribution before the tax reform. Both strategies generate similar results for the extent of tax avoidance. Our results highlight the importance of adjustment costs: firms adjust their contemporaneous sales mostly increasing inventories, and declines in production are driven by adjusting materials, not capital.
Building: Lorch Hall
Event Type: Workshop / Seminar
Tags: Economics, seminar
Source: Happening @ Michigan from Department of Economics, Department of Economics Seminars