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Progressive taxes and firm births

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  • Hans Bacher
  • Marius Brülhart

Abstract

Tax reform proposals in the spirit of the “flat tax” model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. We explore the implications of changes in these parameters for entrepreneurial activity, measured by counts of firm births. The Swiss fiscal system offers sufficient intra-national variation in tax codes to allow us to estimate such effects with considerable precision. We find that high average taxes and complicated tax codes depress firm birth rates, while tax progressivity per se promotes firm births. The latter result supports the existence of an insurance effect from progressive corporate income taxes for risk-averse entrepreneurs. However, implied elasticities with respect to the level and complexity of corporate taxes are an order of magnitude larger than elasticities with respect to the progressivity of tax schedules. Copyright Springer Science+Business Media, LLC 2013

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  • Hans Bacher & Marius Brülhart, 2013. "Progressive taxes and firm births," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 129-168, February.
    • Handle: RePEc:kap:itaxpf:v:20:y:2013:i:1:p:129-168
    DOI: 10.1007/s10797-012-9218-z
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    3. Gábor Békés & Péter Harasztosi, 2018. "Grid and shake: spatial aggregation and the robustness of regionally estimated elasticities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(1), pages 143-170, January.
    4. Eva Luthi & Kurt Schmidheiny, 2014. "The effect of agglomeration size on local taxes," Journal of Economic Geography, Oxford University Press, vol. 14(2), pages 265-287.
    5. Ege Can, 2022. "Income taxation, entrepreneurship, and incorporation status of self-employment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1260-1293, October.
    6. Mina Baliamoune-Lutz & Pierre Garello, 2014. "Tax structure and entrepreneurship," Small Business Economics, Springer, vol. 42(1), pages 165-190, January.
    7. Sergio Galletta & Agustin Redonda, 2017. "Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 962-996, December.
    8. Hoppe, Thomas & Schanz, Deborah & Sturm, Susann & Sureth, Caren, 2019. "Measuring tax complexity across countries: A survey study on MNCs," arqus Discussion Papers in Quantitative Tax Research 245, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. Jacob, Martin, 2021. "Dividend taxes, employment, and firm productivity," Journal of Corporate Finance, Elsevier, vol. 69(C).
    10. Jörn Block, 2021. "Corporate income taxes and entrepreneurship," IZA World of Labor, Institute of Labor Economics (IZA), pages 257-257, July.
    11. Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1), pages 100-108.
    12. Nover, Justus, 2023. "Local labor markets as a taxable location factor? Evidence from a shock to foreign labor supply," ZEW Discussion Papers 23-012, ZEW - Leibniz Centre for European Economic Research.
    13. Șancariuc Delia-Raluca & Preda Dragoș Cosmin Lucian, 2024. "Taxes and Entrepreneurship in Former Communist Countries," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 18(1), pages 176-184.
    14. Berger, Melissa & Misch, Florian & Voget, Johannes, 2016. "Becoming an Entrepreneur - The Role of Profit Taxes," VfS Annual Conference 2016 (Augsburg): Demographic Change 145559, Verein für Socialpolitik / German Economic Association.
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    More about this item

    Keywords

    H32; H2; H7; R3; Progressive taxation; Entrepreneurship; Risk taking; Firm location; Count models;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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