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Entrepreneurship, Firm Entry, and the Taxation of Corporate Income: Evidence from Europe


Marco Da Rin


Department of Finance Tilburg University; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Marina Di Giacomo


University of Turin - Department of Economics and Statistics

Alessandro Sembenelli


University of Turin - Department of Economics and Financial Sciences G. Prato

July 29, 2009

CentER Discussion Paper Series No. 2009-61
TILEC Discussion Paper No. 2010-026

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. We also find that a reduction in corporate tax rates is more effective in countries with better institutional infrastructure. Our results are robust to alternative measures of effective taxation and to the use of alternative and additional explanatory variables.

Number of Pages in PDF File: 59

Keywords: Entrepreneurship, Corporate income taxation, Incorporation, Political economy, Firm entry, Entry regulation, Panel data

JEL Classification: C23, H32, L51, M13

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Date posted: September 3, 2008 ; Last revised: July 23, 2010

Suggested Citation

Da Rin, Marco and Di Giacomo, Marina and Sembenelli, Alessandro, Entrepreneurship, Firm Entry, and the Taxation of Corporate Income: Evidence from Europe (July 29, 2009). CentER Discussion Paper Series No. 2009-61; TILEC Discussion Paper No. 2010-026. Available at SSRN: http://ssrn.com/abstract=1262204 or http://dx.doi.org/10.2139/ssrn.1262204

Contact Information

Marco Da Rin (Contact Author)
Department of Finance Tilburg University ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Tilburg Law and Economics Center (TILEC)
Warandelaan 2
Tilburg, 5000 LE
Netherlands
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Marina Di Giacomo
University of Turin - Department of Economics and Statistics ( email )
Corso Unione Sovietica 218 bis
Torino, 10134
Italy
+39 011 6706074 (Phone)
+39 011 6706062 (Fax)
HOME PAGE: http://web.econ.unito.it/digiacomo
Alessandro Sembenelli
University of Turin - Department of Economics and Financial Sciences G. Prato ( email )
C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy
+39 011 670 6059 (Phone)
+39 011 670 6062 (Fax)
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