Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe

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

Research output: Contribution to journalArticleScientificpeer-review

51 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)1048-1066
JournalJournal of Public Economics
Volume95
Issue number9-10
DOIs
Publication statusPublished - 2011

Keywords

  • entrepreneurship
  • corporate income tax
  • incorporation
  • political economy
  • firm entry
  • entry regulation
  • panel data

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