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Progressive Taxes and Firm Births

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  • Bacher, Hans Ulrich
  • Brülhart, Marius

Abstract

Tax reform proposals in the spirit of the 'flat tax' model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. We explore the implications of changes in these three parameters on entrepreneurial activity, measured by counts of firm births. The Swiss fiscal system offers sufficient intra-national variation in tax codes to allow us to estimate these effects with considerable precision. We find that high average taxes and complicated tax codes depress firm birth rates, while tax progressivity per se promotes firm births. The latter result supports the existence of an insurance effect from progressive corporate income taxes for risk averse entrepreneurs. However, implied elastiticities with respect to the level and complexity of corporate taxes are an order of magnitude larger than elasticities with respect to the progressivity of tax schedules.

Suggested Citation

  • Bacher, Hans Ulrich & Brülhart, Marius, 2010. "Progressive Taxes and Firm Births," CEPR Discussion Papers 7830, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7830
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    Cited by:

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    3. Gábor Békés & Péter Harasztosi, 2018. "Grid and shake: spatial aggregation and the robustness of regionally estimated elasticities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(1), pages 143-170, January.
    4. Hoppe, Thomas & Schanz, Deborah & Sturm, Susann & Sureth, Caren, 2019. "Measuring tax complexity across countries: A survey study on MNCs," arqus Discussion Papers in Quantitative Tax Research 245, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Jörn Block, 2016. "Corporate income taxes and entrepreneurship," IZA World of Labor, Institute of Labor Economics (IZA), pages 257-257, May.
    6. Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1), pages 100-108.
    7. Berger, Melissa & Misch, Florian & Voget, Johannes, 2016. "Becoming an Entrepreneur - The Role of Profit Taxes," VfS Annual Conference 2016 (Augsburg): Demographic Change 145559, Verein für Socialpolitik / German Economic Association.
    8. Sergio Galletta & Agustin Redonda, 2017. "Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 962-996, December.
    9. Orkhan Nadirov & Bruce Dehning, 2020. "Tax Progressivity and Entrepreneurial Dynamics," Sustainability, MDPI, Open Access Journal, vol. 12(9), pages 1-21, April.
    10. Hoppe, Thomas & Schanz, Deborah & Sturm, Susann & Sureth-Sloane, Caren, 2017. "What are the drivers of tax complexity for multinational corporations? Evidence from 108 countries," arqus Discussion Papers in Quantitative Tax Research 223, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    corporate taxation; entrepreneurship; firm location; risk taking;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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