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Tax policy and business entry

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  • Sapollnik, Ian
  • Swonder, Dustin

Abstract

This paper measures the effects of state corporate and personal income tax reforms on business entry using an event study research design. We focus on reforms that do not coincide with federal tax changes, are preceded and followed by stable tax policy, and substantially change tax burdens. Corporate tax reforms cause meaningful changes in business entry: we measure a 5-year elasticity of 2.7 with respect to the net-of-tax rate. This is driven by large effects of tax cuts. Corporate tax cuts also reduce the predicted growth potential of entrants. We do not find strong evidence of cross-border spillovers, and find no evidence that personal income tax reforms affect business entry.

Suggested Citation

  • Sapollnik, Ian & Swonder, Dustin, 2025. "Tax policy and business entry," Journal of Public Economics, Elsevier, vol. 252(C).
    • Handle: RePEc:eee:pubeco:v:252:y:2025:i:c:s0047272725002361
    DOI: 10.1016/j.jpubeco.2025.105537
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    More about this item

    Keywords

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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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