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Abstract:
Resource misallocation explains a large part of cross-country productivity differences. Measuring gaps in marginal products of labor and capital across plants can quantify the extent but not the source of this misallocation. We use new microdata from the oil industry (that includes information on taxation) to pin down both the extent and source of misallocation in the rest-of-the-world versus the United States. We confirm the existence of sizeable gaps in marginal products across production units. However, once differences in direct taxation are accounted for, these gaps largely disappear. This provides strong evidence that gaps in marginal products are largely driven by differences in tax policies rather than more indirect distortions.
