Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe
Da Rin,M. Di Giacomo,M. Sembenelli,A.
Da Rin,M.
Di Giacomo,M.
Sembenelli,A.
Abstract
Can tax policy foster the creation of new companies? To answer this question, we assemble a novel country-industry level panel database with data on entry (by incorporation) for 17 European countries between 1997 and 2004. Our analysis is based on recent models of how corporate taxation affects firm's incorporation decision. We compute effective average tax rates and study how the taxation of corporate income affects entry rates at the country-industry level. Drawing on the political economy literature, we account for the possible endogeneity of taxation. We find a significant negative effect of corporate income taxation on entry rates. The effect is concave and suggests that tax reductions affect entry rates only below a certain threshold tax level. Our results are robust to alternative measures of effective taxation and to the use of alternative and additional explanatory variables.
Description
Appeared earlier as CentER DP 2009-61
Date
2011
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Research Projects
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Keywords
entrepreneurship, corporate income tax, incorporation, political economy, firm entry, entry regulation, panel data, C23 - Panel Data Models ; Spatio-temporal Models, H25 - Business Taxes and Subsidies, H32 - Firm, L51 - Economics of Regulation, M13 - New Firms ; Startups, SDG 17 - Partnerships for the Goals
Citation
Da Rin, M, Di Giacomo, M & Sembenelli, A 2011, 'Entrepreneurship, firm entry, and the taxation of corporate income : Evidence from Europe', Journal of Public Economics, vol. 95, no. 9-10, pp. 1048-1066. https://doi.org/10.1016/j.jpubeco.2010.06.010