Entrepreneurs, Income Taxes, and Investment

49 Pages Posted: 18 Aug 2000 Last revised: 6 Mar 2006

See all articles by Robert Carroll

Robert Carroll

Office of Tax Analysis

Douglas Holtz-Eakin

Syracuse University; National Bureau of Economic Research (NBER)

Mark Rider

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)

Date Written: January 1998

Abstract

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.

Suggested Citation

Carroll, Robert and Holtz-Eakin, Douglas and Rider, Mark and Rosen, Harvey S., Entrepreneurs, Income Taxes, and Investment (January 1998). NBER Working Paper No. w6374. Available at SSRN: https://ssrn.com/abstract=226123

Robert Carroll

Office of Tax Analysis

Main Treasury Building
15th and Pennsylvania Avenue
Washington, DC 20220
United States

Douglas Holtz-Eakin (Contact Author)

Syracuse University ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States
315-443-3612 (Phone)
315-443-3717 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mark Rider

Georgia State University - Department of Economics ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Harvey S. Rosen

Princeton University - Department of Economics ( email )

001 Fisher Hall
Princeton, NJ 08544
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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