The Kansas tax experiment: The matter of legal form of organization

Shi Qi and Don Schlagenhauf

Journal of Economic Dynamics and Control, 2021, vol. 133, issue C

Abstract: Using a dynamic stochastic occupational choice model with heterogeneous firms, this paper studies a sweeping business tax-cut program enacted in the State of Kansas during 2012–2016. This paper finds that “The Kansas Tax Experiment” distorts entrepreneurial choice of legal form of organization (LFO), and encourages the adoption of the pass-through status over the C-corporate legal form. Because pass-through businesses face more constraints on access-to-capital, the policy reduces aggregate productive efficiency and leads to declines in output, capital formation, and employment growth. This article highlights the importance of considering LFO choice when making a business tax policy change.

Keywords: Legal form of organization; Business tax; Capital misallocation (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:133:y:2021:i:c:s0165188921002062

DOI: 10.1016/j.jedc.2021.104271

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