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Firm Entry Dynamics and Taxation of Corporate Profits: Evidence from Europe (Replaced by DP 2009-61)

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  • Da Rin, M.
  • Di Giacomo, M.
  • Sembenelli, A.

    (Tilburg University, Center for Economic Research)

Abstract

Can tax policy foster the creation of new companies? To answer this question, we assemble a novel country-industry level panel database with entry data of European companies between 1997 and 2004. We compute effective tax rates and explore the effect of corporate taxation policy on entry rates at country-industry level. Drawing on the recent political economy literature, we also account for the endogeneity of taxation. We find a significant negative effect of corporate income taxation on entry rates. The effect is concave and suggests that tax reductions affect entry rates only below a certain threshold tax level. We also find that a reduction in corporate tax rates is more effective in countries with better institutional infrastructure. Our results are robust to alternative measures of effective taxation and to the use of alternative and additional explanatory variables.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-65.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200865

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Cited by:
  1. Alexander Popov & Peter Roosenboom, 2009. "On the Real Effects of Private Equity Investment - Evidence from New Business Creation," Working Paper Series 1078, European Central Bank.
  2. Appelbaum, Elie & Katz, Eliakim, 1996. "Corporate taxation, incumbency advantage and entry," European Economic Review, Elsevier, vol. 40(9), pages 1817-1828, December.

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