A Sufficient Statistics Approach to Optimal Corporate Taxes

Dustin L. Swonder and Damián Vergara

No 34517, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper characterizes the equity–efficiency tradeoff of corporate taxation using a stylized model that draws on the corporate investment and tax incidence literatures. We derive optimal corporate tax formulas in terms of estimable reduced-form elasticities and welfare weights on workers and firm owners. While much empirical work emphasizes investment responses, these elasticities do not feature in optimal tax formulas. The elasticity of taxable profits is a sufficient statistic for the efficiency costs of the corporate tax. Higher corporate tax rates are desirable when firm owners have low welfare weights, and less desirable when taxing profits reduces wages. These empirical objects remain central across extensions, including heterogeneous production technologies, tax sheltering, international capital mobility, monopsony, and linear labor income taxes. We survey the empirical literature and find that existing estimates can support a wide range of optimal tax rates. An inverse-optimum analysis provides combinations of welfare weights of workers and firm owners that would rationalize the post-2017 US corporate tax cut as optimal.

JEL-codes: H0 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cfn, nep-pbe and nep-pub
Note: PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34517.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34517

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34517
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().