Entrepreneurship, Firm Entry, and the Taxation of Corporate Income: Evidence from Europe
AbstractCan tax policy foster the creation of new companies? To answer this question, we assemble a novel country-industry level panel database with data on entry (by incorporation) for 17 European countries between 1997 and 2004. Our analysis is based on recent models of how corporate taxation affects firm’s incorporation decision. We compute effective average tax rates and study how the taxation of corporate income affects entry rates at the country-industry level. Drawing on the political economy literature, we account for the possible 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 InfoPaper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2010-026.
Date of creation: 2010
Date of revision:
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Web page: http://www.tilburguniversity.nl/tilec/
Entrepreneurship; Corporate income taxation; Incorporation; Political economy; Firm entry; Entry regulation; Panel data;
Other versions of this item:
- Da Rin, Marco & Di Giacomo, Marina & Sembenelli, Alessandro, 2011. "Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1048-1066, October.
- Da Rin, Marco & Di Giacomo, Marina & Sembenelli, Alessandro, 2011. "Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe," Journal of Public Economics, Elsevier, vol. 95(9), pages 1048-1066.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
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