Turnover Taxes and Productivity: Evidence from a Brazilian Tax Reform

Working Paper
Published on 29 November 2015

Abstract

Caprettini and Ciccone (2015) exploit a Brazilian tax reform to study the productivity losses caused by taxes on turnover, a type of tax that distorts transactions between firms and that is common in developing countries. They build a model in which many sectors exchange inputs sequentially before delivering final goods, and show that distortions to trade between firms are amplified by the number of stages of production". They calibrate the model to the Brazilian economy and compute the productivity gains of the reform. They find that considering production processes that have 11 or more stages of production leads to estimated productivity gains of removing the turnover tax more than 4 times larger than considering production processes where firms exchange inputs only once. When production requires an infinite number of stages the gains of the reform are maximized and they are equal to around 0.05% of national income.

Authors

Bruno Caprettini

University of Zurich

Antonio Ciccone

Mannheim University