Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch
Corporations often have strong incentives to exert influence on the tax code and obtain additional tax benefits through lobbying. For the U.S. financial crisis of 2007-09, this paper shows that lobbying activity intensified, driven by large firms i...
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/354941522689036064/Lobbying-for-capital-tax-benefits-and-misallocation-of-resources-during-a-credit-crunch http://hdl.handle.net/10986/29607 |
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okr-10986-296072021-06-08T14:42:45Z Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch Zaourak, Gabriel LOBBYING FINANCIAL FRICTION CREDIT MISALLOCATION CREDIT CRUNCH TAX POLICY CAPITAL TAX TAXATION Corporations often have strong incentives to exert influence on the tax code and obtain additional tax benefits through lobbying. For the U.S. financial crisis of 2007-09, this paper shows that lobbying activity intensified, driven by large firms in sectors that depend more on external finance. Using a heterogeneous agent model with financial frictions and endogenous lobbying, the paper studies the aggregate consequences of this rise in lobbying activity. When calibrated to U.S. micro data, the model generates an increase in lobbying that matches the magnitude and the cross-sector and within-sector variation observed in the data. The analysis finds that lobbying for capital tax benefits, together with financial frictions, accounts for 80 percent of the decline in output and almost all the drop in total factor productivity observed during the crisis for the non-financial corporate sector. Relative to an economy without lobbying, this mechanism increases the dispersion in the marginal product of capital and amplifies the credit shock, leading to a one-third larger decline in output. The paper also studies the long run effects of lobbying. Restricting lobbying implies welfare gains of 0.3 percent after considering the transitional dynamics to the new steady state. 2018-04-03T15:25:28Z 2018-04-03T15:25:28Z 2018-04 Working Paper http://documents.worldbank.org/curated/en/354941522689036064/Lobbying-for-capital-tax-benefits-and-misallocation-of-resources-during-a-credit-crunch http://hdl.handle.net/10986/29607 English Policy Research Working Paper;No. 8394 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper United States |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
LOBBYING FINANCIAL FRICTION CREDIT MISALLOCATION CREDIT CRUNCH TAX POLICY CAPITAL TAX TAXATION |
| spellingShingle |
LOBBYING FINANCIAL FRICTION CREDIT MISALLOCATION CREDIT CRUNCH TAX POLICY CAPITAL TAX TAXATION Zaourak, Gabriel Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch |
| geographic_facet |
United States |
| relation |
Policy Research Working Paper;No. 8394 |
| description |
Corporations often have strong
incentives to exert influence on the tax code and obtain
additional tax benefits through lobbying. For the U.S.
financial crisis of 2007-09, this paper shows that lobbying
activity intensified, driven by large firms in sectors that
depend more on external finance. Using a heterogeneous agent
model with financial frictions and endogenous lobbying, the
paper studies the aggregate consequences of this rise in
lobbying activity. When calibrated to U.S. micro data, the
model generates an increase in lobbying that matches the
magnitude and the cross-sector and within-sector variation
observed in the data. The analysis finds that lobbying for
capital tax benefits, together with financial frictions,
accounts for 80 percent of the decline in output and almost
all the drop in total factor productivity observed during
the crisis for the non-financial corporate sector. Relative
to an economy without lobbying, this mechanism increases the
dispersion in the marginal product of capital and amplifies
the credit shock, leading to a one-third larger decline in
output. The paper also studies the long run effects of
lobbying. Restricting lobbying implies welfare gains of 0.3
percent after considering the transitional dynamics to the
new steady state. |
| format |
Working Paper |
| author |
Zaourak, Gabriel |
| author_facet |
Zaourak, Gabriel |
| author_sort |
Zaourak, Gabriel |
| title |
Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch |
| title_short |
Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch |
| title_full |
Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch |
| title_fullStr |
Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch |
| title_full_unstemmed |
Lobbying for Capital Tax Benefits and Misallocation of Resources during a Credit Crunch |
| title_sort |
lobbying for capital tax benefits and misallocation of resources during a credit crunch |
| publisher |
World Bank, Washington, DC |
| publishDate |
2018 |
| url |
http://documents.worldbank.org/curated/en/354941522689036064/Lobbying-for-capital-tax-benefits-and-misallocation-of-resources-during-a-credit-crunch http://hdl.handle.net/10986/29607 |
| _version_ |
1764469797153669120 |