Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S

58 Pages Posted: 21 Jun 2002 Last revised: 28 Oct 2010

See all articles by Julie Berry Cullen

Julie Berry Cullen

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: June 2002

Abstract

Entrepreneurial activity is presumed to generate important spillovers, potentially justifying tax subsidies. How does the tax law affect individual incentives? How much of an impact has it had in practice? We first show theoretically that taxes can affect the incentives to be an entrepreneur due simply to differences in tax rates on business vs. wage and salary income, due to differences in the tax treatment of losses vs. profits through a progressive rate structure and through the option to incorporate, and due to risk-sharing with the government. We then provide empirical evidence using U.S. individual tax return data that these aspects of the tax law have had large effects on actual behavior.

Suggested Citation

Berry Cullen, Julianne (Julie) and Gordon, Roger H., Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S (June 2002). NBER Working Paper No. w9015. Available at SSRN: https://ssrn.com/abstract=316794

Julianne (Julie) Berry Cullen

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-4828 (Phone)
858-534-7040 (Fax)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
178
rank
165,670
Abstract Views
1,696
PlumX Metrics