This paper develops a simple accounting framework that measures the effect of resource misallocation on aggregate productivity. This framework is based on a multi-sector general equilibrium model with sector-specific frictions in the form of taxes on sectoral factor inputs.Our framework is flexible for the assumption on preferences or aggregate production functions.Moreover, this framework is consistent with that commonly used in productivity analysis. I apply this framework to measure the extent to which resource misallocation explains the difference in aggregate productivity across developed countries. I find that resource misallocation explains, on average, 17% of the difference in the measured aggregate productivity among developed countries. I also provide the methods to decompose the causes of the misallocation effect.JEL Codes: E23, O11, O41, O47 Keywords: distortions; frictions; productivity; resource allocation * The old version of this paper is titled "A Simple Accounting Framework for Frictions on Sectoral Resource Allocation," and was presented at the 2006 Fall JEA meeting. I thank Toni Braun and Fumio Hayashi, Tomohiro Hirano, Tomoyuki Nakajima, Minoru Kitahara, Julen Esteban-Pretel, Katsuya Takii, and Kyoji Fukao for their helpful comments and suggestions. All remaining errors are mine.

We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of the firm size distribution from idiosyncratic, firm-level productivity shocks. Executives and entrepreneurs invest in risk-free assets, as well as their own firms' risky stocks, through which their wealth and income depend on firm-level shocks. By using the model, we evaluate how changes in tax rates can account for the evolution of top incomes in the United States. The model matches the decline in the Pareto exponent of the income distribution and the trend of the top 1 percent income share in recent decades. (JEL D31, H24, L11)

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We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of the firm size distribution from idiosyncratic, firm-level productivity shocks. Executives and entrepreneurs invest in risk-free assets as well as their own firms' risky stocks, through which their wealth and income depend on firm-level shocks. By using the model, we evaluate how changes in tax rates can account for the evolution of top incomes in the U.S. The model matches the decline in the Pareto exponent of the income distribution and the trend of the top 1% income share in recent decades.JEL Codes: D31, L11, O40