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Do Corporate and Personal Income Taxes Affect Incorporation?

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Author Info

  • Félix Domínguez Barrero

    () (Universidad de Zaragoza)

  • Julio López Laborda

    () (Universidad de Zaragoza)

  • Fernando Rodrigo Sauco

    () (Universidad de Zaragoza)

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    Abstract

    The paper estimates the impact that the differences of taxation in the Spanish Personal Income Tax (IRPF) and Corporate Income Tax (IS) cause in the division of the economic activity between corporate and noncorporate firms. The exercise is based on the approach proposed by Mackie-Mason and Gordon (1997), who specifies the relation between both taxes by means of the construction of a variable that measures the “fiscal distortion” to incorporating. In our research, the fiscal distortion is estimated from the calculation of the “average effective tax rates” for the sole and social proprietors, adapting the methodology established by Devereux and Griffith (1998b). The paper concludes that the tax factors do not turn out to be significant in the organizational decisions of the firms in Spain, and that are the nontax and macroeconomic aspects those that explain the weight of the corporate firms in the managerial activity.

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    File URL: http://www.ief.es/documentos/recursos/publicaciones/revistas/hac_pub/174_IRPF.pdf
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    Bibliographic Info

    Article provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.

    Volume (Year): 174 (2005)
    Issue (Month): 3 (September)
    Pages: 55-86
    Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
    Handle: RePEc:hpe:journl:y:2005:v:174:i:3:p:55-86

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    Related research

    Keywords: Personal Income Tax; Corporate Tax; organizational form; fiscal distortion; average effective tax rate.;

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    References

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    1. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, vol. 88(11), pages 2283-2299, September.
    2. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers W96/14, Institute for Fiscal Studies.
    3. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer, vol. 10(2), pages 107-26, March.
    4. 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.
    5. 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.
    6. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
    7. Roger Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "A New Summary Measure of the Effective Tax Rate on Investment," NBER Working Papers 9535, National Bureau of Economic Research, Inc.
    8. Michael P. Devereux, 2003. "Measuring Taxes on Income from Capital," CESifo Working Paper Series 962, CESifo Group Munich.
    9. Jeffrey K. MacKie-Mason & Roger H. Gordon, 1991. "How Much Do Taxes Discourage Incorporation," NBER Working Papers 3781, National Bureau of Economic Research, Inc.
    10. Michael P. Devereux & Alexander Klemm, 2003. "Measuring Taxes on Income from Capital: Evidence from the UK," CESifo Working Paper Series 968, CESifo Group Munich.
    11. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey S. Rosen, 2001. "Personal Income Taxes and the Growth of Small Firms," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 121-148 National Bureau of Economic Research, Inc.
    12. Roger H. Gordon, 1998. "Can High Personal Tax Rates Encourage Entrepreneurial Activity?," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 49-80, March.
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