Arjan Lejour, Gabriella Massenz
Organizational-Form Choice and Tax Incentives: Multi-Country Evidence
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- 10.1628/fa-2021-0010
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We study how differential taxation of personal and corporate income impacts the corporate share of new firms for 31 countries over 1998-2018. We build a novel database that identifies the tax treatment of partnerships either as corporations or as passthrough entities. We find a tax elasticity of 0.07 for the period 1998-2007 and of 0.12 for 2008-2018. Estimates are larger for countries where the presence of partnerships is nonnegligible and where they are treated as passthrough for tax purposes, suggesting that the tax sensitivity of organizational-form choice interacts with the relevance of partnerships and their tax treatment.