Entrepreneurs, Income Taxes, and Investment
Office of Tax Analysis
Syracuse University; National Bureau of Economic Research (NBER)
Georgia State University - Department of Economics
Harvey S. Rosen
Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
NBER Working Paper No. w6374
This paper investigates the effect of entrepreneurs' personal income tax situations on their capital investment decisions. We examine the income tax returns of a sample of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates for the relatively affluent associated with that law affected their decisions to invest in physical capital. We find that individual income taxes exert a statistically and quantitatively significant influence on investment decisions. In our sample increase in marginal tax rates would reduce the proportion of entrepreneurs who make new capital investments by 10.4 percent, and decrease mean investment expenditures by 9.9 percent.
Number of Pages in PDF File: 49working papers series
Date posted: August 18, 2000
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