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How Much Do Taxes Discourage Incorporation?

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Author Info
 Mackie-Mason, Jeffrey K
Gordon, Roger H

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Abstract

The double taxation of corporate income should discourage firms from incorporating. The authors investigate the extent to which the aggregate allocation of assets and taxable income in the United States between corporate and noncorporate firms responds to the size of this tax distortion during the period 1959-86. In theory, profitable firms should shift out of the corporate sector when the tax distortion is large, and conversely for firms with tax losses. The authors' empirical results provide strong support for these forecasts and imply that the resulting excess burden equals 16 percent of business tax revenue. Copyright 1997 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 2 (June)
Pages: 477-505
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:2:p:477-505

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1992. "Tax Distortions to the Choice of Organizational Form," NBER Working Papers 4227, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Laurence J. Kotlikoff & Lawrence H. Summers, 1988. "Tax Incidence," NBER Working Papers 1864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Kotlikoff, Laurence J. & Summers, Lawrence H., 1987. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092 Elsevier. [Downloadable!] (restricted)
  3. Kevin J. Murphy, 1986. "Incentives, Learning, and Compensation: A Theoretical and Empirical Investigation of Managerial Labor Contracts," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 59-76, Spring. [Downloadable!] (restricted)
  4. Poterba, J.M., 1989. "Tax Reform And The Market For Tax-Exempt Debt," Working papers 514, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. Altshuler, Rosanne & Auerbach, Alan J, 1990. "The Significance of Tax Law Asymmetries: An Empirical Investigation," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 61-86, February. [Downloadable!] (restricted)
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  6. Gravelle, Jane G & Kotlikoff, Laurence J, 1989. "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 749-80, August. [Downloadable!] (restricted)
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  7. Kochin, Levis A & Parks, Richard W, 1988. " Was the Tax-Exempt Bond Market Inefficient or Were Future Expected Tax Rates Negative?," Journal of Finance, American Finance Association, vol. 43(4), pages 913-31, September. [Downloadable!] (restricted)
  8. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, vol. 21(2), pages 129-158, July. [Downloadable!] (restricted)
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  9. Gentry, William M., 1994. "Taxes, financial decisions and organizational form : Evidence from publicly traded partnerships," Journal of Public Economics, Elsevier, vol. 53(2), pages 223-244, February. [Downloadable!] (restricted)
  10. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May. [Downloadable!] (restricted)
  11. Myron S. Scholes & Mark A. Wolfson, 1989. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," NBER Working Papers 3095, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Gordon, Roger H. & Bradford, David F., 1980. "Taxation and the stock market valuation of capital gains and dividends : Theory and emphirical results," Journal of Public Economics, Elsevier, vol. 14(2), pages 109-136, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mihir Desai & Dhammika Dharmapala, . "Corporate Tax Avoidance and High Powered Incentives," American Law & Economics Association Annual Meetings 1006, American Law & Economics Association. [Downloadable!]
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  2. Martin D. Dietz & Christian Keuschnigg, 2004. "Corporate Income Tax Reform in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(IV), pages 483-519, December. [Downloadable!]
    Other versions:
  3. Joel Slemrod, 1995. "High-Income Families and the Tax Changes of the 1980s: The Anatomy of Behavioral Response," NBER Working Papers 5218, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Félix Domínguez Barrero & Julio López Laborda & Fernando Rodrigo Sauco, 2005. "Do Corporate and Personal Income Taxes Affect Incorporation?," Hacienda Pública Española, IEF, vol. 174(3), pages 55-86, September. [Downloadable!]
  5. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2004. "Business Environment and the Incorporation Decision," Policy Research Working Paper Series 3317, The World Bank. [Downloadable!]
    Other versions:
  6. Roger H. Gordon & Young Lee, 1999. "Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data," NBER Working Papers 7433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Annette Alstadsæter & Knut Reidar Wangen, 2008. "Corporations’ Choice of Tax Regime when Transition Costs are Small and Income Shifting Potential is Large," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  8. Alan J. Auerbach, 2001. "Taxation and Corporate Financial Policy," NBER Working Papers 8203, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," EPRU Working Paper Series 06-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  10. Ahmed, S., 2004. "Modelling corporate tax liabilities using company accounts: a new framework," Cambridge Working Papers in Economics 0412, Faculty of Economics, University of Cambridge. [Downloadable!]
  11. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  13. Jagadeesh Sivadasan & Joel Slemrod, 2006. "Tax Law Changes, Income Shifting and Measured Wage Inequality: Evidence from India," NBER Working Papers 12240, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Austan Goolsbee, 1997. "Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax," NBER Working Papers 6173, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Robert Carroll & Warren Hrung, 2005. "What Does the Taxable Income Elasticity Say About Dynamic Responses to Tax Changes?," American Economic Review, American Economic Association, vol. 95(2), pages 426-431, May. [Downloadable!]
  16. Ruud A. de Mooij & Gaëtan Nicodème, 2007. "Corporate Tax Policy, Entrepreneurship and Incorporation in the EU," Tinbergen Institute Discussion Papers 07-030/3, Tinbergen Institute. [Downloadable!]
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  17. Thor O. Thoresen and Annette Alstadsæter, 2008. "Shifts in organizational form under a dual income tax system," Discussion Papers 529, Research Department of Statistics Norway. [Downloadable!]
  18. Alan Auerbach & Michael P. Devereux & Helen Simpson, 2007. "Taxing Corporate Income," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  19. Annette Alstadsaeter, 2007. "The Achilles Heel of the Dual Income Tax: The Norwegian Case," Finnish Economic Papers, Finnish Society for Economic Research, vol. 20(1), pages 5-22, Spring. [Downloadable!]
  20. Doina Maria Radulescu & Michael Stimmelmayr, 2008. "The Welfare Loss from Differential Taxation of Sectors in Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  21. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1994. "Why Is There Corporate Taxation In a Small Open Economy? The Role of Transfer Pricing and Income Shifting," NBER Working Papers 4690, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Margaret Lamb, Andrew Lymer, 1999. "Taxation research in an accounting context: future prospects and interdisciplinary perspectives," European Accounting Review, Taylor and Francis Journals, vol. 8(4), pages 749-776, December. [Downloadable!] (restricted)
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