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Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries

  • Richard Kneller
  • Danny McGowan

In this paper we study the effects of reforms to corporate and personal income taxation on the rate of firm entry and exit using industry data for 19 OECD countries from 1998 to 2005. Using a difference-in-differences approach to correct for endogeneity bias we find that increases in corporate taxation affect entry but not exit. The effects of personal taxation depend upon the marginal tax rate that is altered. Increases in marginal tax rates applied at low income levels negatively affect entry and positively affect exit, whereas marginal tax reforms at higher income levels have the opposite effect.

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Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 11/08.

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Handle: RePEc:not:notecp:11/08
Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/

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  1. Da Rin, M. & Di Giacomo, M. & Sembenelli, A., 2009. "Corporate Taxation and the Size of New Firms : Evidence From Europe," Discussion Paper 2009-72, Tilburg University, Center for Economic Research.
  2. Elie Appelbaum & Eliakim Katz, 1996. "Corporate taxation, incumbency advantage and entry," Working Papers 1996_12, York University, Department of Economics.
  3. Herb J. Schuetze, 2002. "Profiles of Tax Non-compliance Among the Self-Employed in Canada: 1969 to 1992," Canadian Public Policy, University of Toronto Press, vol. 28(2), pages 219-237, June.
  4. repec:ner:tilbur:urn:nbn:nl:ui:12-3607199 is not listed on IDEAS
  5. Apel,M., 1994. "An Expenditure-Based Estimate of Tax Evasion in Sweden," Papers 1, Uppsala - Working Paper Series.
  6. Donald Bruce & Mohammed Mohsin, 2006. "Tax Policy and Entrepreneurship: New Time Series Evidence," Small Business Economics, Springer, vol. 26(5), pages 409-425, 06.
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