How Do Firm Characteristics Affect the Corporate Income Tax Revenue?
Abstract
We use a dynamic model of the rm to study the determinants of the maximal tax rate (i.e., the
corporate income tax rate that maximizes tax proceeds). Under a standard parameterization of
the model, we nd that the curvature of the production function, the market cost of capital, and
the operating costs are among the main determinants of that maximal rate. We also nd that
the maximal tax rate is around 66% for a representative rm and it varies across U.S. industries
in the range 64%-76%. Finally, our results show that the maximal rate behaves procyclically
over the business cycle.
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