Corporate taxation and the size of new firms: Evidence from Europe

M. Da Rin, M. Di Giacomo, A. Sembenelli

Research output: Contribution to journalArticleScientificpeer-review

14 Citations (Scopus)
447 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)606-616
JournalJournal of the European Economic Association
Volume8
Issue number2-3
Publication statusPublished - 2010

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