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Incorporation and Productivity

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  • Robert J. Barro
  • Brian Wheaton

Abstract

Corporate versus pass-through status trades off productivity benefits (related to perpetual identity, limited liability, public trading, and earnings retention) against tax wedges, estimated from U.S. federal taxes on corporate profits, dividends, and partnership income. In regressions, C-corporate economic shares decline with the wedge and exhibit negative trends, which we relate to legal changes for LLCs since the late 1980s. A calibrated model, fit to observed total factor productivity (TFP) and corporate shares of economic activity, implies that, for 1958-2013, the declining wedge and gap between corporate and pass-through productivity contributed 0.37% per year out of the total TFP growth rate of 1.09% per year. From 1994 to 2004, the TFP growth rate was unusually high—2.00% per year—and the contribution from the falling productivity gap was unusually large—0.77% per year.

Suggested Citation

  • Robert J. Barro & Brian Wheaton, 2019. "Incorporation and Productivity," CESifo Working Paper Series 7909, CESifo.
    • Handle: RePEc:ces:ceswps:_7909
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    Cited by:

    1. Robert J. Barro & Brian Wheaton, 2020. "Taxes, Incorporation, and Productivity," Tax Policy and the Economy, University of Chicago Press, vol. 34(1), pages 91-111.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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