Brockmeyer, Anne
(2013)
Essays on business taxation and development.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis addresses a number of questions on the optimal taxation of firms, with
particular emphasis on the challenges to taxation in developing economies. Chapter
1 exploits bunching of firms at a tax kink to identify the effect of a tax rate change
on investment. Building on the standard bunching framework, I estimate the frequency distribution of firms around the kink, and the share of bunching firms with
excess investment. I apply this approach to administrative tax returns for firms in
the United Kingdom and find that excess investment explains up to 20% of bunch ing. Chapter 2 examines the trade-off between production efficiency and revenue
efficiency in taxation under imperfect enforcement. We exploit quasi-experimental
variation created by a minimum tax scheme, a production inefficient policy used in
many developing countries, which consists of taxing firms on turnover as their profit
rate falls below a certain threshold. Using administrative tax records of corporations in Pakistan, we find large bunching around the profit rate kink createded by the
minimum tax scheme and estimate that the turnover tax reduces evasion by up to
60-70% of corporate income. Chapter 3 analyzes the impact of interventions by the
International Monetary Fund (IMF) on countries’ likelihood of adopting the value added tax (VAT). I discuss how the IMF has promoted VAT adoption by making
lending conditional on adoption, providing administrative and technical assistance,
and reducing the political costs of adoption. Applying a Cox proportional hazard
model to a cross-country panel for the period 1975-2000, I find that countries that
are under a lending agreement with the IMF are three times as likely to adopt the
VAT than are countries not under a lending agreement.
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