Do Tax Rates Encourage Entrepreneurial Activity?
Electronic Access:
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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.
Series:
Working Paper No. 1997/088
Subject:
Corporate income tax Financial institutions Labor National accounts Personal income Self-employment Stocks Tax incentives Taxes
Notes:
Also published in Staff Papers, Vol. 45, No. 1, March 1998.
English
Publication Date:
July 1, 1997
ISBN/ISSN:
9781451851120/1018-5941
Stock No:
WPIEA0881997
Pages:
35
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