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

Author

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  • Da Rin, M.

    (Tilburg University, Center For Economic Research)

  • Di Giacomo, M.
  • Sembenelli, A.

Abstract

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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Suggested Citation

  • 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.
    • Handle: RePEc:tiu:tiucen:480b604e-ee66-474c-a455-fbac0b9b2892
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    References listed on IDEAS

    as
    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)," Other publications TiSEM aae0d3e7-9687-4d96-b534-6, Tilburg University, School of Economics and Management.
    2. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    3. Kerr, William R. & Nanda, Ramana, 2009. "Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 94(1), pages 124-149, October.
    4. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2005. "Regulation And Investment," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 791-825, June.
    5. William R. Kerr & Ramana Nanda, 2010. "Banking Deregulations, Financing Constraints, and Firm Entry Size," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 582-593, 04-05.
    6. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers W98/16, Institute for Fiscal Studies.
    7. 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.
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    More about this item

    Keywords

    Entrepreneurship. Corporate income taxation. Incorporation. Firm entry. Firm size. Entry regulation. Panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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