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The role of corporate taxes in the decline of the startup rate

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  • Julian Neira
  • Rish Singhania

Abstract

The US has experienced a joint decline in corporate tax rates and startup rates in recent decades. We study how changes in corporate taxes affect startup rates in a firm dynamics model with occupational choice. A change in profit taxes has ambiguous effects on firm selection, and therefore on the startup rate. Quantitatively, the observed fall in US corporate tax rates generates, at most, one‐fifth of the startup rate decline. Sensitivity analysis suggests that this number is best interpreted as an upper bound, indicating that corporate taxes did not play a major role in the startup rate decline.

Suggested Citation

  • Julian Neira & Rish Singhania, 2022. "The role of corporate taxes in the decline of the startup rate," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1277-1295, July.
    • Handle: RePEc:bla:ecinqu:v:60:y:2022:i:3:p:1277-1295
    DOI: 10.1111/ecin.13066
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    Cited by:

    1. Satyajit Chatterjee & Burcu Eyigungor, 2019. "The Firm Size and Leverage Relationship and Its Implications for Entry and Concentration in a Low Interest Rate World," Working Papers 19-18, Federal Reserve Bank of Philadelphia.
    2. Sedlacek, Petr & Sterk, Vincent, 2019. "Reviving american entrepreneurship? tax reform and business dynamism," Journal of Monetary Economics, Elsevier, vol. 105(C), pages 94-108.
    3. Hugo Hopenhayn & Julian Neira & Rish Singhania, 2022. "From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share," Econometrica, Econometric Society, vol. 90(4), pages 1879-1914, July.
    4. Satyajit Chatterjee & Burcu Eyigungor, 2023. "The Firm Size-Leverage Relationship and Its Implications for Entry and Business Concentration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 132-157, April.
    5. Satyajit Chatterjee & Burcu Eyigungor, 2023. "The Firm Size-Leverage Relationship and Its Implications for Entry and Business Concentration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 132-157, April.
    6. Andrea Colciago & Vivien Lewis & Branka Matyska, 2023. "Corporate taxes, productivity, and business dynamism," Working Papers 512, University of Milano-Bicocca, Department of Economics, revised May 2023.
    7. Neira, Julian & Singhania, Rish, 2020. "Quantifying the Effect of Corporate Taxes on the Life Cycle of Firms," MPRA Paper 99359, University Library of Munich, Germany.
    8. Colciago, Andrea & Lewis, Vivien & Matyska, Branka, 2023. "Corporate taxes, productivity, and business dynamism," Discussion Papers 16/2023, Deutsche Bundesbank.
    9. Andrea Colciago & Vivien Lewis & Branka Matyska, 2023. "Corporate taxes, productivity, and business dynamism," Working Papers 780, DNB.

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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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