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: We study firms’ responses to Costa Rica’s 2019 CIT reform, which replaced a notched schedule with a kinked one, reducing distortions in the system at the cost of simplicity. Using 2016–2023 administrative returns in a difference-in-differences design that exploits rich variation in marginal and average rates, we find: (i) signs of tax manipulation, such as bunching and profit-margin discontinuities at the first (now eliminated) revenue threshold, declined promptly after the reform; (ii) responses were asymmetric, with reactions to tax increases weaker than those to tax cuts, likely due to the removal of growth barriers; (iii) firms behaved like profit maximisers: their profits and other intensive-margin variables responded to marginal but not average tax rates, in contrast with evidence that individuals, when confronted with relatively complex non-linear schedules, conflate the two rates and deviate from optimising behaviour. Overall, clear communication of complex reforms from policy makers can improve efficiency without leading increased to compliance errors.

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.

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:  High social security contribution costs are widely seen as a key barrier to registration, especially for low-earning workers in developing economies. In Costa Rica, the structure of the social security system creates particularly high costs for the registration of employees at the lower end of the earnings distribution and their employers, due to the application of a minimum contribution floor. In 2023, a reform aimed to reduce these costs by lowering this contribution floor, reducing registration costs for both employers and employees, rolled out gradually by age. Using rich administrative and survey data and exploiting the phased rollout, this paper evaluates the effects of the reform on registration and other labour market outcomes six moths after its implementation. We find no significant impacts on registration or on reported earnings to the social security administration. However, when examining constructed measures of net and gross earnings, we observe higher take-home pay for employees and lower total labour costs for employers. This suggests that the cost savings were shared in line with the statutory changes. Our short term findings imply that reducing social security contributions costs alone may not be enough to boost registration, at least in the short term, and point to the need for complementary policies to improve incentives and reduce barriers to registration.

POLICY WORK

POLICY WORK DURING PhD

Indicators of Potential Customs Misreporting: Patterns, Fiscal Cost and Audit Prioritisation in Tanzania

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. 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 over 2018–2023. Patterns consistent with misreporting are associated with higher customs duties and a weaker Tanzanian shilling. The study also identifies product-origin pairs that may merit closer scrutiny. It combines the size and persistence of potential misreporting signals, tariff rates, and estimated duty revenue at stake to help 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. It offers an external source of evidence to complement existing customs risk analysis.