Output Distortions and the Choice of Legal Form of Organization

27 Pages Posted: 15 Dec 2020

See all articles by Katarzyna Anna Bilicka

Katarzyna Anna Bilicka

Utah State University; University of Oxford - Oxford University Centre for Business Taxation

Sepideh Raei

Utah State University

Date Written: August 1, 2020

Abstract

We study the distortions to aggregate output created by the differential tax treatment of corporations and pass through entities. We develop an industry equilibrium model in which the legal form of organization is an endogenous choice for firms facing trade off between tax treatment of business income, access to external capital, and the evolution of productivity over time. We match this model to features of the US economy. We find that, relative to the benchmark economy, revenue-neutral tax reform in which legal forms receive the same tax treatments leads to 1.25% increase in the aggregate output.

Keywords: Output Distortions, Legal Form of Organization, Pass Through

JEL Classification: E62, H32, H25

Suggested Citation

Bilicka, Katarzyna Anna and Raei, Sepideh, Output Distortions and the Choice of Legal Form of Organization (August 1, 2020). Available at SSRN: https://ssrn.com/abstract=3714939 or http://dx.doi.org/10.2139/ssrn.3714939

Katarzyna Anna Bilicka (Contact Author)

Utah State University ( email )

Logan, UT 84322
United States

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

Sepideh Raei

Utah State University ( email )

Logan, UT 84322
United States

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