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Corporate Income Tax, Legal Form of Organization, and Employment

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  • Don Schlagenhauf

    (Federal Reserve Bank of St Louis)

Abstract

A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of legal form of organization. A reduction in the corporate income tax burden encourages adoption of the C corporporation legal form, which reduces capital constraints on firms. Improved capital re-allocation increases overall productive efficiency in the economy and therefore expands the labor market. Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent.

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  • Don Schlagenhauf, 2018. "Corporate Income Tax, Legal Form of Organization, and Employment," 2018 Meeting Papers 334, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:334
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    References listed on IDEAS

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    Cited by:

    1. Alexis Anagnostopoulos & Orhan Erem Atesagaoglu & Eva Carceles-Poveda, 2018. "Financing Corporate Tax Cuts with Shareholder Taxes," Department of Economics Working Papers 18-07, Stony Brook University, Department of Economics.
    2. Alexis Anagnostopoulos & Orhan Erem Atesagaoglu & Eva Carceles-Poveda, 2014. "On the Double Taxation of Corporate Profits," Department of Economics Working Papers 14-03, Stony Brook University, Department of Economics.
    3. Benjamin Pugsley & Sebastian Dyrda, 2017. "Taxes, Regulations of Businesses and Evolution of Income Inequality in the US," 2017 Meeting Papers 1463, Society for Economic Dynamics.
    4. E. Mark Curtis & Ryan Decker, 2018. "Entrepreneurship and State Taxation," Finance and Economics Discussion Series 2018-003, Board of Governors of the Federal Reserve System (US).
    5. repec:gam:jsusta:v:11:y:2019:i:3:p:741-:d:202270 is not listed on IDEAS

    More about this item

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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