Working Paper: NBER ID: w9141
Authors: 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.
Keywords: corporate income tax; organizational form; efficiency costs
JEL Codes: H25; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| relative taxation of corporate income (tax_c) (H29) | corporate share of employment (G30) |
| relative taxation of corporate income (tax_c) (H29) | corporate share of revenue (G35) |
| relative taxation of corporate income (tax_c) (H29) | non-corporate forms (e.g., partnerships or sole proprietorships) (L39) |
| relative taxation of corporate income (tax_c) (H29) | corporate share of economic activity (D33) |