Do lower taxes reduce the size of the firms? Evidence from micro-entrepreneurs in Brazil

Marcos Nascimento and Enlinson Mattos

Economics Letters, 2023, vol. 226, issue C

Abstract: This paper explores unique administrative data on the universe of firms under a simplified tax regime (SN) in a representative Brazilian state. We investigate micro-entrepreneurs revenue response to a reduced tax rate, up to 3.3 p.p. for smaller firms. Our preferred results show an excess mass of 735 (295%) firms bunching at the tax reduction eligibility threshold, resulting in an estimated elasticity of business income with respect to the net-of-taxes of 0.015. Firms whose revenues are close to the thresholds are associated with a larger probability to report positive revenue in the subsequent year (1.8%), however, most of these firms are no longer active.

Keywords: Simplified tax regime; Firms’ reported revenue; Bunching (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:226:y:2023:i:c:s0165176523000939

DOI: 10.1016/j.econlet.2023.111068

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