RESEARCH

JOB MARKET PAPER

Less Simple, Less Distortionary? Evidence from Costa Rica’s Corporate Tax Reform 

joint with Jonathan Garita

Heinz König Award 2025 - ZEW Leibniz Centre for European Economic Research,  3rd prize

Abstract: This paper studies how firms respond to a less distortionary but less simple tax schedule in a developing economy. Many such economies tax firms with simple designs, some of which create large distortions. Less simple schedules can reduce these distortions, but misperceptions and optimisation errors may lead taxpayers to respond to the wrong incentives. We examine this trade-off in Costa Rica’s 2020 corporate income tax reform, which, among other changes for small and medium firms, replaced a simple notched schedule, where a single rate applied to all profits, with a less simple kinked one, where several rates may apply, with higher rates applying only to the part of profits above each threshold. Using 2016–2024 administrative tax returns and a difference-in-differences design that exploits the rich variation in marginal and average rates across firms introduced by the reform, we find that firms responded to the right incentives: reported profits tracked changes in marginal, not average, tax rates, unlike what has been documented for individuals. In contrast to other taxes, responses to tax cuts and increases were symmetric, with elasticities with respect to the net-of-tax rate of about 3.1–3.2, implying that reversing a corporate tax change can return reported profits to where they started. At the former notch, firms stopped bunching just below the threshold and inflating costs just above it. Giving up simplicity therefore reduced a distortion without creating a new one, suggesting that less simple and more efficient tax designs can be considered in developing economies.

OTHER WORKING PAPERS

Multinational Responses to Coordinated Tax Reform: Evidence from the Global Minimum Tax

joint with Felix Hugger and Tom Zawisza

OECD Taxation Working Papers, No. 77. / Submitted

Abstract:  This paper studies how multinational enterprises (MNEs) respond to an internationally coordinated change in corporate taxation. The introduction of the Global Minimum Tax (GMT) in 2024 subjected MNEs with revenues above EUR 750m to a minimum effective rate of 15\%. Exploiting this revenue threshold in a difference-in-differences framework, the analysis assesses the impact of the GMT on effective tax rates, investment and employment. Using group-level Orbis data, the results show that previously low-taxed MNEs increased effective tax rates by around 1.7 percentage points, and increased global CIT by 2.4-3.4\%. However, this increase was not accompanied by a detectable reduction in investment or employment. The increase in effective tax rates is concentrated in MNEs more likely to have greater profit shifting opportunities and higher profitability. The findings provide first ex-post evidence on the effects of the GMT and suggest that internationally coordinated reforms can raise the effective taxation of MNEs without generating short-run reductions in economic activity.

Low-Earning Workers and Social Security: Evidence from Costa Rica’s Contributions Reform 

joint with Laura Abramovsky and Jonathan Garita

Abstract:  Social security contributions raise the cost of formal employment and are considered a key determinant of informality among low-wage workers in developing economies, yet evidence on whether reducing them increases registration is mixed. In Costa Rica, a minimum contribution floor makes registration particularly costly for these workers and their employers. In 2023, a reform lowered this floor, reducing contributions for both employers and employees, with a gradual rollout by age. Using administrative and survey data and a regression discontinuity design that exploits the phased implementation, we evaluate the reform’s effects on registration and other labour market outcomes six months after it came into force. We find no significant effects on registration or on earnings reported to the social security administration. However, using constructed measures of net and gross earnings, we find higher take-home pay for workers and lower total labour costs for firms, with cost savings shared in line with the statutory changes. These short-term results suggest that lowering contribution costs alone may not be enough to increase registration, and that complementary policies are needed to address remaining barriers to formality.

POLICY WORK

POLICY WORK DURING PhD

Import Tax Evasion, Drivers and Recommendations for Tanzania 

Funded by the International Growth Centre (IGC). In partnership with the Tanzania Revenue Authority.

Abstract: This study uses publicly available UN Comtrade data for 2018–2023 to examine patterns of potential customs misreporting in Tanzania. By comparing Tanzania’s reported imports with the exports reported by its trading partners, it identifies discrepancies consistent with possible underreporting of import values and misclassification of goods into lower-duty codes. Under the assumptions of the analysis, the customs duty revenue associated with these discrepancies is estimated at around 9–12% of Tanzania’s total net tax revenue per year, most of it linked to underreported values rather than misclassification. These patterns become more pronounced where customs duties are higher and when the Tanzanian shilling weakens, and they appear to work mainly through lower declared unit prices rather than smaller declared quantities, which is consistent with under-invoicing. Building on these results, the study combines the size and persistence of potential misreporting signals with tariff rates and estimated duty revenue at stake to identify product-origin pairs that may merit closer scrutiny, helping to prioritise follow-up analysis using the Tanzania Revenue Authority’s administrative customs data. Because the approach relies primarily on publicly available trade statistics, it can be repeated as new data become available, offering an external source of evidence to complement existing customs risk analysis.