One of the most basic distortions created by the double taxation of corporate income is the disincentive to incorporate. In this paper, we investigate the extent to which the aggregate allocation of assets and taxable income in the U.S. between corporate vs. non-corporate forms of organization during the period 1959--86 has responded to the size of the tax distortion discouraging firms from incorporating. In theory, profitable firms should shift out of the corporate sector when the tax distortion to incorporating is larger, and conversely for firms with tax losses. Our empirical results provide strong support for these theoretical forecasts, and hold consistently across a wide variety of specifications and measures of the tax variables. The economic magnitudes of the effects are small, however, throwing doubt on the economic importance of tax--induced changes in organizational form.
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Paper provided by EconWPA in its series Public Economics with number
9401002.
Find related papers by JEL classification: D6 - Microeconomics - - Welfare Economics D7 - Microeconomics - - Analysis of Collective Decision-Making H - Public Economics
References listed on IDEAS 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.:
Laurence J. Kotlikoff & Lawrence H. Summers, 1988.
"Tax Incidence,"
NBER Working Papers
1864, National Bureau of Economic Research, Inc.
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Other versions:
Kotlikoff, Laurence J. & Summers, Lawrence H., 1987.
"Tax incidence,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092
Elsevier.
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