Do Tax Rates Encourage Entrepreneurial Activity?

July 1, 1997

Preview Citation

Format: Chicago

Roger H. Gordon Do Tax Rates Encourage Entrepreneurial Activity?, (USA: International Monetary Fund, 1997) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Corporate income tax, Financial institutions, Labor, National accounts, Personal income, Self-employment, Stocks, Tax incentives, Taxes

Keywords: Compensation offer, Copycat firm, Corporate income tax, Corporate tax tax rate, Entrepreneurial activity, Expected return, Firm offer equity, Mover accent, Personal income, Self-employment, Start-up expense, Stocks, Tax incentives, Venture capitalist, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/088
Stock No:

WPIEA0881997
ISBN:

9781451851120
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 45, No. 1, March 1998.

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