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The Impact and Inefficiency of the Corporate Income Tax: Evidence from State Organizational Form Data

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  • Austan Goolsbee

Abstract

By double taxing the income of corporate firms but not unincorporated firms, taxes can play an important role in a firm's choice of organizational form. The sensitivity of the organizational form decision to tax rates can also be used to approximate the efficiency cost of the corporate income tax. This paper uses new cross-sectional data on organizational form across states compiled in the Census of Retail Trade to estimate this sensitivity. The results document a significant impact of the relative taxation of corporate to personal income on the share of economic activity that is done by corporations including sales, employment, and the number of firms. The impacts are substantially larger than those found in the previous empirical literature based on time-series data.

Suggested Citation

  • Austan Goolsbee, 2002. "The Impact and Inefficiency of the Corporate Income Tax: Evidence from State Organizational Form Data," NBER Working Papers 9141, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9141
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    Cited by:

    1. 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.
    2. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 791-833.
    3. Goolsbee, Austan & Maydew, Edward, 2002. "Taxes and Organizational Form: The Case of REIT Spin-Offs," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(3), pages 441-456, September.
    4. Reuven Avi-Yonah, 2005. "The Pitfalls of International Integration: A Comment on the Bush Proposal and its Aftermath," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(1), pages 87-95, January.
    5. Meh, Césaire A., 2008. "Business risk, credit constraints, and corporate taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2971-3008, September.
    6. Martin D. Dietz & Christian Keuschnigg, 2004. "Corporate Income Tax Reform in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(IV), pages 483-519, December.
    7. William F. Fox & LeAnn Luna, 2005. "Do Limited Liability Companies Explain Declining State Corporate Tax Revenues?," Public Finance Review, , vol. 33(6), pages 690-720, November.
    8. Reuven Avi-Yonah, "undated". "The Pitfalls of International Integration: A Comment on the Bush Proposal and Its Aftermath," University of Michigan John M. Olin Center for Law & Economics Working Paper Series umichlwps-1007, University of Michigan John M. Olin Center for Law & Economics.

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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