Capital-Based Corporate Tax Benefits: Endogenous Misallocation through Lobbying
Tanida Arayavechkit, Felipe Saffie, and Minchul Shin ,
Working paper

The dominant issue of corporate lobbying in the U.S. is taxation. Firms that lobby are granted tax benefits and enjoy systematically lower effective tax rates than non-politically active firms, even after controlling by firm characteristics. Because most of these tax benefits are tied to capital holding, corporate lobbying could distort the allocation of capital in the economy. A heterogeneous firm dynamics model with endogenous lobbying decisions is presented to study the macroeconomic effects of capital-based tax benefits and their interaction with endogenous corporate lobbying behavior.

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