Taxes, tax administrative burdens and new firm formation
AbstractThis paper examines the tax administrative burden and its effect on new firm formation. It is well recognized that entrepreneurship and new firm formation are critical factors in determining economic growth and development. New firm entry into the marketplace enhances welfare in two distinct ways: 1) by promoting innovation, productivity and economic growth and 2) by increasing competition, which lowers prices and expands output. It is also well documented that barriers to entry reduce the likelihood that new firms will enter various sectors. We argue that the burden imposed by tax codes and tax compliance constitutes a barrier to entry that has been neglected in the previous literature. We use data from the World Bank to measure the administrative burden that the complexity of tax policy imposes on new firm. Additionally, we use a measure of new firm formation—entry density. Our data cover 118 countries over a period of six years. We find that the entry rate is significantly reduced by the tax administrative burden and that this effect is unrelated to general taxes on corporate profits and is robust to the inclusion of several important control variables.
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Bibliographic InfoPaper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 312.
Length: 22 pages
Date of creation: 27 May 2013
Date of revision:
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More information through EDIRC
tax administrative burden; entry; entrepreneurship; new firm formation; regulations; tax policy;
Other versions of this item:
- Pontus Braunerhjelm & Johan E. Eklund, 2014. "Taxes, tax administrative burdens and new firm formation," Kyklos, Wiley Blackwell, vol. 67(1), pages 1-11, 02.
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- K20 - Law and Economics - - Regulation and Business Law - - - General
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-06-09 (Accounting & Auditing)
- NEP-ALL-2013-06-09 (All new papers)
- NEP-BEC-2013-06-09 (Business Economics)
- NEP-ENT-2013-06-09 (Entrepreneurship)
- NEP-IUE-2013-06-09 (Informal & Underground Economics)
- NEP-PBE-2013-06-09 (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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