How is the COVID-19 pandemic affecting firm profits and tax payments in developing countries? This paper uses administrative corporate tax records from 10 low- and middle-income countries around the world to provide plausible estimates. Modeling the lockdown-triggered revenue shock with simple and transparent assumptions, the analysis predicts that less than half of all firms will remain profitable by the end of 2020, about 5-10 percent of the formal aggregate annual payroll will be lost, and firm exit rates will double. As a result, it is expected that tax revenue remitted by the corporate sector will fall by at least 1.5 percent of baseline gross domestic product. Differences in sectoral composition and firms' cost structures generate heterogeneity in the results across countries: wage subsidies are less effective in low-income countries and government revenue losses are smaller.
Details
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Author
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Document Date
2020/10/14
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Document Type
Policy Research Working Paper
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Report Number
WPS9437
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2020/10/14
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Disclosure Status
Disclosed
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Doc Name
The Impact of COVID-19 on Formal Firms: Micro Tax Data Simulations across Countries
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Keywords
wage subsidy; Wage Subsidies; access to international capital markets; development research group; tax revenue losses; loss in tax revenue; reduction in tax revenue; corporate income tax; payroll tax revenue; formal corporate sector; corporate tax return; unit of output; payroll tax rate; loss in revenue; effective tax rate; general equilibrium analysis; number of jobs; labor and materials; loss of employment; compulsory social security; private sector debt; negative supply shock; Estimate Taxes; global supply chain; personal income tax; comparison of cost; information and communication; demand shock; richer countries; formal employment; budget support; formal sector; Learning and Innovation Credit; sectoral composition; survey data; output loss; manufacturing sector; simple average; movement restriction; retail trade; tax declaration; economic sector; longer period; firm size; informal sector; policy tool; smaller share; budgetary impact; firm exit; government support; tax payment; Wage Bill; expected loss; balanced budget; partner country; taxable value; marginal group; equilibrium model; open access; financing need; partial equilibrium; employment increase; tax minimization; government revenue; change product; ranking country; baseline revenue; tourism sector; Trade Linkages; indirect impact; employee contributions; total tax; tax loss; silver lining; lost revenue; research assistance; tax base; transparent framework; summary statistic; Research Support; output shock; several months; population size; annual sale; descriptive statistic; labor input; liquidity provision; tax policy; cost component; real time; raw material; annual revenue; low share; average share; digital information; work force; development policy; temporary shock; recent studies; Stabilization policies; macroeconomic expectation; macroeconomic implication; Macroeconomic Policy; tax authority; tax authorities; available data; Tax Compliance; equal weight; negative value; Waste Management; panel data; production function; insurance activity; lower rate; back up; Real estate; value added; credit guarantee; credit line; government budget; import tariff; trade tax; summing up; cost structure; industrial composition; informal employment; monetary policy; production network; demand forecast; initial loss; debt level
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Citation
Bachas,Pierre Jean Brockmeyer,Anne Semelet,Camille Marine
The Impact of COVID-19 on Formal Firms: Micro Tax Data Simulations across Countries (English). Policy Research working paper,no. WPS 9437,COVID-19 (Coronavirus),Paper is funded by the Knowledge for Change Program (KCP) Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/432861602682833105/The-Impact-of-COVID-19-on-Formal-Firms-Micro-Tax-Data-Simulations-across-Countries