Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries

42 Pages Posted: 10 Jul 2012

See all articles by Danny McGowan

Danny McGowan

University of Nottingham

Richard Kneller

University of Nottingham

Date Written: July 1, 2012

Abstract

In this paper we study the effects of reforms to corporate and personal income taxation on the rate of firm entry and exit using industry data for 19 OECD countries from 1998 to 2005. Using a difference-in-differences approach to correct for endogeneity bias we find that increases in corporate taxation affect entry but not exit. The effects of personal taxation depend upon the marginal tax rate that is altered. Increases in marginal tax rates applied at low income levels negatively affect entry and positively affect exit, whereas marginal tax reforms at higher income levels have the opposite effect.

Keywords: income taxation, firm entry, firm exit, difference in differences

JEL Classification: D22, H2, H32, L26

Suggested Citation

McGowan, Danny and Kneller, Richard, Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries (July 1, 2012). Bangor Business School Research Paper No. 12/006. Available at SSRN: https://ssrn.com/abstract=2103056 or http://dx.doi.org/10.2139/ssrn.2103056

Danny McGowan (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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