IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Corporate Tax Policy, Entrepreneurship and Incorporation in the EU

  • Ruud A. De Mooij
  • Gaëtan J.A. Nicodème

In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on firm births and legal form of business to analyze income shifting via increased entrepreneurship and incorporation. The results suggest that lower corporate taxes exert an ambiguous effect on entrepreneurship. The effect on incorporation is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 10% and 17% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.2%-points since the early 1990s.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-12/cesifo1_wp1883.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1883.

as
in new window

Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:ces:ceswps:_1883
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
Email:


More information through EDIRC

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.:

as in new window
  1. Bruce, Donald, 2002. "Taxes and Entrepreneurial Endurance: Evidence from the Self-Employed," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 5-24, March.
  2. Harry Huizinga & Gaëtan Nicodème, 2003. "Foreign ownership and corporate income taxation : an empirical evaluation," European Economy - Economic Papers 185, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  3. Jeffrey K. MacKie-Mason & Roger H. Gordon, 1991. "How Much Do Taxes Discourage Incorporation," NBER Working Papers 3781, National Bureau of Economic Research, Inc.
  4. Alan J. Auerbach & James M. Poterba, 1987. "Why Have Corporate Tax Revenues Declined?," NBER Chapters, in: Tax Policy and the Economy, Volume 1, pages 1-28 National Bureau of Economic Research, Inc.
  5. Yannis Georgellis & Howard J. Wall, 2004. "Entrepreneurship and the policy environment," Working Papers 2002-019, Federal Reserve Bank of St. Louis.
  6. Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, vol. 69(1), pages 143-152, July.
  7. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2001. "Insurance Within the Firm," CEPR Discussion Papers 2793, C.E.P.R. Discussion Papers.
  8. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc.
  9. Donald Bruce & Mohammed Mohsin, 2006. "Tax Policy and Entrepreneurship: New Time Series Evidence," Small Business Economics, Springer, vol. 26(5), pages 409-425, 06.
  10. Clemens Fuest & Alfons Weichenrieder, 2002. "Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates," CESifo Working Paper Series 781, CESifo Group Munich.
  11. Alan J. Auerbach, 2006. "Why Have Corporate Tax Revenues Declined? Another Look," NBER Working Papers 12463, National Bureau of Economic Research, Inc.
  12. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June.
  13. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1992. "Tax Distortions to the Choice of Organizational Form," NBER Working Papers 4227, National Bureau of Economic Research, Inc.
  14. Annette Alstadsæter, 2003. "The Dual Income Tax and Firms' Income Shifting through the Choice of Organizational Form and Real Capital Investments," CESifo Working Paper Series 1018, CESifo Group Munich.
  15. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  16. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
  17. Ga�tan Nicod�me, 2001. "Computing effective corporate tax rates: comparisons and results," European Economy - Economic Papers 153, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  18. Fossen, Frank M. & Steiner, Viktor, 2006. "Income Taxes and Entrepreneurial Choice: Empirical Evidence from Germany," IZA Discussion Papers 2164, Institute for the Study of Labor (IZA).
  19. Simon C. Parker & Martin T. Robson, 2004. "Explaining International Variations in Self-Employment: Evidence from a Panel of OECD Countries," Southern Economic Journal, Southern Economic Association, vol. 71(2), pages 287-301, October.
  20. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
  21. William M. Gentry & R. Glenn Hubbard, 2004. ""Success Taxes," Entrepreneurial Entry, and Innovation," NBER Working Papers 10551, National Bureau of Economic Research, Inc.
  22. Schuetze, Herb J., 2000. "Taxes, economic conditions and recent trends in male self-employment: a Canada-US comparison," Labour Economics, Elsevier, vol. 7(5), pages 507-544, September.
  23. Martin T. Robson & Colin Wren, 1999. "Marginal and Average Tax Rates and the Incentive for Self-Employment," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 757-773, April.
  24. Hansson, Åsa, 2005. "The Wealth Tax and Entrepreneurial Activity," Working Papers 2005:43, Lund University, Department of Economics.
  25. Poterba, James M., 1989. "Capital Gains Tax Policy Toward Entrepreneurship," National Tax Journal, National Tax Association, vol. 42(3), pages 375-89, September.
  26. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "Why has the UK corporation tax raised so much revenue?," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 367-388, December.
  27. Parker, Simon C, 1996. "A Time Series Model of Self-Employment under Uncertainty," Economica, London School of Economics and Political Science, vol. 63(251), pages 459-75, August.
  28. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J., 2004. "Are dividends disappearing? Dividend concentration and the consolidation of earnings," Journal of Financial Economics, Elsevier, vol. 72(3), pages 425-456, June.
  29. Rachel Griffith & Alexander Klemm, 2004. "What has been the tax competition experience of the past 20 years?," IFS Working Papers W04/05, Institute for Fiscal Studies.
  30. Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, vol. 153(3), pages 277-301, 09.
  31. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, vol. 88(11), pages 2283-2299, September.
  32. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1883. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.