Corporate Tax Asymmetry and Market Power
This paper analyzes the extent to which asymmetric corporate income taxation reinforces the advantage of market power. Lower markup firms face larger expected penalties due to time discounting of carryforwards, while higher expected profitability and faster utilization of losses shield high market power firms. Evidence from U.S. publicly traded companies indicate a modest tax penalty differential between firms in the lowest and highest markup quintiles. The paper then assesses the impact of the provisions of the Tax Cuts and Jobs Act of 2017 that restricted the ability of firms to use their loss carryforwards. Among firms with carryforwards, high markup firms increased investment and acquisitions relative to low markup firms following this change.
Optimal Taxation and Enforcement with Market Power
This paper explores the effect of market power on optimal tax and enforcement rates, finding that neither tax rates nor enforcement levels necessarily vary monotonically with market power. Higher effective taxation of an imperfectly competitive market compounds its distortions, but in some circumstances the associated welfare cost can be outweighed by the behavior of the tax base. The government's tradeoff between taxation and enforcement is strongly influenced by the degree of complementarity between firm size and the cost of tax avoidance. If greater firm size facilitates avoidance, then more competitive markets will feature lower tax avoidance rates, making higher tax rates rather than stiffer enforcement the lower-cost option for obtaining tax revenue.
Optimal Dual-Regime Business Tax Systems (with Rishi R. Sharma, Joel Slemrod, Michael Stimmelmayr, and John D. Wilson)
Dual-regime business tax systems typically subject smaller firms to an output (turnover) tax and larger firms to a profit (corporate) tax. Despite their prevalence, there is little formal analysis of their optimal design. This paper addresses this gap by developing a theoretical framework to analyze the optimal tax parameters and the relative performance of two types of dual-regime systems: threshold and minimum tax systems. We show that either type of dual regime system can yield lower social costs than a single regime system. Using parameter values from recent empirical studies, we also show that a generalized minimum tax system we propose would outperform other dual regime systems under most parameter values. These findings carry important policy implications, particularly as many countries currently employ either threshold or minimum tax systems, but none have yet implemented a generalized minimum tax.
Optimal Progressivity of K-12 Public School Funding (with Jordy Berne)