Year: 2025
Type: article
Abstract: This paper examines the impact of financially constrained intermediate inputs on within-industry total factor productivity loss. Utilizing exogenous tax reforms in China as a natural experiment, our difference-in-difference analysis reveals that reduced tax burdens lead to increased firm-level intermediate inputs, particularly among financially constrained firms. We incorporate financially constrained intermediate inputs into a partial equilibrium model of firm dynamics. Our calibration suggests that financially constrained intermediate inputs play a quantitatively more important role in accounting for misallocation than financially constrained capital. The presence of financially constrained intermediate inputs introduces a downward bias in the measurement of value-added productivity, especially for firms in the top decile of gross-output productivity. As a result, the average “efficient” levels of capital and labor for the top decile firms in the standard Hsieh and Klenow (2009) exercise are lower than what is truly efficient.
Source: Macroeconomic Dynamics
Authors: Wenya Wang, Jing Xu
Institutions: Binghamton University, Sun Yat-sen University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,550
OpenAlex ID: W4408994034