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.