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Corporate Taxation and the Size of New Firms: Evidence from Europe

  • Marco Da Rin
  • Marina Di Giacomo
  • Alessandro Sembenelli

Using a novel country-industry level panel database with information on newly incorporated firms in 17 European countries between 1997 and 2004, we study how taxation of corporate income affects the size of entrants at the country-industry level. Our results, which are robust to changes in several assumptions, suggest that a one-unit reduction in the effective corporate income tax rate leads to a reduction of entrants' capital size that ranges from 2.7% to 14.4%. Results on labor size are more mixed in terms of both sign and size. These findings imply that a reduction in corporate taxation reduces the capital to labor ratio. (JEL: C23, H32, L26, L51, M13) (c) 2010 by the European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 2-3 (04-05)
Pages: 606-616

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:606-616
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  1. Da Rin, M. & Di Giacomo, M. & Sembenelli, A., 2009. "Entrepreneurship, Firm Entry, and the Taxation of Corporate Income : Evidence from Europe (Revised version of DP 2008-65)," Discussion Paper 2009-61, Tilburg University, Center for Economic Research.
  2. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2003. "Regulation and Investment," NBER Working Papers 9560, National Bureau of Economic Research, Inc.
  3. Silvia Ardagna & Annamaria Lusardi, 2009. "Where does regulation hurt? Evidence from new businesses across countries," NBER Working Papers 14747, National Bureau of Economic Research, Inc.
  4. William Kerr & Ramana Nanda, 2009. "Banking Deregulations, Financing Constraints, and Firm Entry Size," NBER Working Papers 15499, National Bureau of Economic Research, Inc.
  5. repec:dgr:kubcen:200961 is not listed on IDEAS
  6. William Kerr & Ramana Nanda, 2006. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship," Harvard Business School Working Papers 07-033, Harvard Business School, revised Oct 2008.
  7. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers W98/16, Institute for Fiscal Studies.
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