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Taxation and Incorporation

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  • Keuschnigg, Christian
  • Egger, Peter
  • Winner, Hannes

Abstract

This paper provides a theory of incorporation and taxation that emphasizes the role of the corporate legal form in facilitating access to external capital and the potential advantages of limited liability. Incorporation relaxes financing constraints and makes corporations larger than comparable non-corporate firms. For the same reason, a tax on corporations imposes a smaller first order welfare loss than a tax on non-corporate firms. We study the consequences of tax reform and compare the role of taxation with other institutional reforms. --

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Bibliographic Info

Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis with number 48729.

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Date of creation: 2011
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Handle: RePEc:zbw:vfsc11:48729

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Web page: http://www.socialpolitik.org/
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Keywords: Incorporation; corporate tax; external capital; limited liability;

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References

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  1. Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
  2. Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 663-91, August.
  3. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, Elsevier, vol. 88(11), pages 2283-2299, September.
  4. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, American Economic Association, vol. 102(6), pages 2381-2409, October.
  5. Robert M. Bushman & Joseph D. Piotroski & Abbie J. Smith, 2004. "What Determines Corporate Transparency?," Journal of Accounting Research, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 207-252, 05.
  6. Andrew Ellul & Marco Pagano & Fausto PAnunzi, 2008. "Inheritance Law and Investment in Family Firms," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 204, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 30 Nov 2009.
  7. Bonds, Stephen R. & Devereux, Michael P., 1995. "On the design of a neutral business tax under uncertainty," Journal of Public Economics, Elsevier, Elsevier, vol. 58(1), pages 57-71, September.
  8. Gentry, William M., 1994. "Taxes, financial decisions and organizational form : Evidence from publicly traded partnerships," Journal of Public Economics, Elsevier, Elsevier, vol. 53(2), pages 223-244, February.
  9. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1075-1090, September.
  10. Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 69(1), pages 143-152, July.
  11. Roger H. Gordon, 1998. "Can High Personal Tax Rates Encourage Entrepreneurial Activity?," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 49-80, March.
  12. Jagadeesh Sivadasan & Joel Slemrod, 2006. "Tax Law Changes, Income Shifting and Measured Wage Inequality: Evidence from India," NBER Working Papers 12240, National Bureau of Economic Research, Inc.
  13. Martynova, M. & Renneboog, L.D.R., 2010. "A Corporate Governance Index: Convergence and Diversity of National Corporate Governance Regulations," Discussion Paper, Tilburg University, Center for Economic Research 2010-17, Tilburg University, Center for Economic Research.
  14. Roger H. Gordon & Jeffrey K. MacKie--Mason, 1994. "Tax Distortions to the Choice of Organizational Form," Public Economics, EconWPA 9401004, EconWPA, revised 18 Jan 1994.
  15. Jeffrey K. MacKie-Mason & Roger H. Gordon, 1994. "How Much Do Taxes Discourage Incorporation?," Public Economics, EconWPA 9401002, EconWPA.
  16. Holger Spamann, 2010. "The "Antidirector Rights Index" Revisited," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(2), pages 467-486, February.
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Cited by:
  1. Matthias Stöckl & Hannes Winner, 2013. "Koerperschaftsbesteuerung und Unternehmensverschuldung: Evidenz aus einem Europaeischen Firmenpanel," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(2), pages 188-205, March.
  2. Christian Keuschnigg, 2010. "Die volkswirtschaftliche Bedeutung des Accounting," University of St. Gallen Department of Economics working paper series 2010, Department of Economics, University of St. Gallen 2010-03, Department of Economics, University of St. Gallen.

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