Output Distortions and the Choice of Legal Form of Organization

29 Pages Posted: 15 Dec 2020

Date Written: 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.

JEL Classification: E620, H320, H250

Suggested Citation

Bilicka, Katarzyna Anna and Raei, Sepideh, Output Distortions and the Choice of Legal Form of Organization (2020). CESifo Working Paper No. 8756, Available at SSRN: https://ssrn.com/abstract=3748957 or http://dx.doi.org/10.2139/ssrn.3748957

Katarzyna Anna Bilicka

Utah State University

Logan, UT 84322
United States

Sepideh Raei (Contact Author)

Utah State University ( email )

Logan, UT 84322
United States

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