Income Taxation and Business Incorporation: Evidence from the Early Twentieth Century
AbstractIf the corporate income tax is set at a different rate from non-corporate income tax, it can play an important role in a firm's choice of organizational form. The impact and interdependency of income tax incentives are crucial factors to take into account when designing efficient tax policies. In this paper I exploit the substantial variation in income taxes across U.S. states in the early twentieth century to estimate these sensitivities. The potential endogeneity of state taxes is addressed using an IV approach. The results demonstrate that the relative taxation of corporate to personal income has a significant impact on the corporate share of economic activities. Raising the entrepreneur's tax cost of incorporation by 10% decreases the mean corporate share of economic activities by about 11-18%. In addition, higher personal tax rates may affect the share of corporate activities through tax evasion and tax progressivity.
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Bibliographic InfoPaper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1205.
Date of creation: 2012
Date of revision:
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More information through EDIRC
Corporate income tax; Personal income tax; Incorporation; Early Twentieth Century;
Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-10-13 (Accounting & Auditing)
- NEP-ALL-2012-10-13 (All new papers)
- NEP-HIS-2012-10-13 (Business, Economic & Financial History)
- NEP-IUE-2012-10-13 (Informal & Underground Economics)
- NEP-PBE-2012-10-13 (Public Economics)
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.:
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"Incorporation and Taxation: Theory and Firm-level Evidence,"
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- Peter Egger & Christian Keuschnigg & Hannes Winner, 2008. "Incorporation and Taxation: Theory and Firm-level Evidence," University of St. Gallen Department of Economics working paper series 2008 2008-20, Department of Economics, University of St. Gallen.
- Timothy Guinnane & Ron Harris & Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2007. "Putting the Corporation in its Place," NBER Working Papers 13109, National Bureau of Economic Research, Inc.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- On the effects of income tax to the private businesses
by bearodr in NEP-HIS blog on 2012-11-08 12:23:20
- Mazhar Waseem, 2013. "Taxes, Informality and Income Shifting: Evidence from a Recent Pakistani Tax Reform," 2013 Papers pwa641, Job Market Papers.
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