The determinants of the size distribution of firms in Uganda

Distortions, efficiency and the size distribution of firms

“…Based on firm-level data from Uganda, Goyette (2014) shows that the auditing strategy of tax officials changes around a certain threshold corresponding to about 30 employees. Based on theses empirical facts, Goyette (2013) examines, using a model à la Hopenhayn (1992), whether a change from the effective tax threshold, which is determined by the number of employees, to the official tax threshold which is based on total sales, impacts firm level productivity as well as aggregate productivity in Uganda and shows that there could be as much as a 16% gain in aggregate productivity in using the official tax threshold.…”

“…6 The survey focuses on firms' activities including investment, sales, finance, regulation, infrastructure, taxation, corruption and labor market. For a detailed discussion about the data and summary statistics see Goyette (2014).…”

“…7 For the sake of completeness, we list some noteworthy features of the Ugandan data used to build the theoretical model in the next section: (1) audit intensity of smaller firms, as reported by entrepreneurs, depends only on the number of employees, but not on capital or revenues and (2) the audit intensity increases sharply for firms with more than 30 employees. These facts are documented in Goyette (2014) and we refer the interested reader to the original article. There is however cross-country differences in output per worker.…”

“…For feature 1, we refer the interested reader to Goyette (2014). We present some results for the two other features in what follows.…”

“…Viceversa, when credit market frictions exist, access to rental markets is limited, meaning that smaller firms may be shut out from borrowing. The second twist on the standard model follows from Goyette (2013Goyette ( , 2014 and introduces size-dependent tax liabilities. Empirical evidence suggests that tax liabilities jump in a discrete fashion when the number of employees grows above a certain threshold and that the uneven tax auditing results in firms with more employees paying higher taxes.…”