Do Tax Rates Encourage Entrepreneurial Activity?

35 Pages Posted: 15 Feb 2006

See all articles by Roger H. Gordon

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: July 1997

Abstract

When the top personal tax rates are above the corporate rate, high-income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes. U.S. tax law at least imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting. However, entrepreneurs setting up new firms can easily reclassify their income for tax purposes. This tax incentive therefore favors entrepreneurial activity. The paper discusses how best to subsidize entrepreneurial activity while avoiding other economic distortions.

JEL Classification: H25, O31, L11

Suggested Citation

Gordon, Roger H., Do Tax Rates Encourage Entrepreneurial Activity? (July 1997). IMF Working Paper, Vol. , pp. 1-35, 1997. Available at SSRN: https://ssrn.com/abstract=882595

Roger H. Gordon (Contact Author)

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

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La Jolla, CA 92093-0508
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858-534-4828 (Phone)
858-534-7040 (Fax)

Harvard University - Department of Economics ( email )

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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

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