Firms' outcomes adjustment in response to changes in the corporate income tax rate in Developing Countries:Evidence from Ecuador 2013 - 2018

The low tax capacity is an important issue in many developing and emerging countries. Most governments have tackled this issue by implementing fiscal reforms that comprise changes in tax rates, improvements in administrative enforcement or even both at the same time. I use a quasi experimental setting created as a result of a fiscal reform in Ecuador in late 2014. Using a panel of administrative data from firms financial statements during the period 2013-2018, I exploit the variation created by the reform that consisted in an increase from 22% to 25% - in 2015 - and to 28% - in 2018 - on the statutory corporate income tax rate. Three types of responses are studied: 1) corporate size responses, 2) financing responses, 3) profit shifting responses and 4) changes in ownership structure after the reform. Even though there is a large literature that has been built around firms behavior to changes in corporate tax rates in developed countries, there is ambiguos and scarced evidence about the responses of firms to fiscal reforms in developing and emerging countries.