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Author(s) / Editor(s): 
  • Ana María Iregui-Bohórquez
  • Ligia Alba Melo-Becerra
  • Antonio José Orozco-Gallo

Corporate taxes and firms´ performance: A meta-frontier approach

The series Borradores de Economía (Working Papers on Economics) contributes to the dissemination and promotion of the work by researchers from the institution. On multiple occasions, these works have been the result of collaborative work with individuals from other national or international institutions. This series is indexed at Research Papers in Economics (RePEc)

Publicado el: 
Wednesday, 13 May 2020

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

 

Abstract

 

Corporate taxes play an important role in the firm's decision-making as they are part of the cost of capital. Thus, understanding the effect of taxes on the performance of firms in the context of  frequent tax reforms, as is the case of Colombia, is of great relevance. We use meta-frontier stochastic techniques,which allow us to estimate in two-steps the technical effciency of firms within each economic sector and between economic sectors in relation to the set of firms in the country. Then, using quantile regression analysis, we estimate both the effect of corporate taxation on firm performance as well as the effect of efficiency on firms' tax payments. Results indicate that firms in some economic sectors could be benefiting form better production conditions and that the most effcient firms within each sector paid more taxes, as a share of assets. However, when compared to the meta-frontier, firms with higher effciency paid less taxes, suggesting differences in the tax burden of firms across economic sectors.