Do Corporate and Personal Income Taxes Affect Incorporation?

Félix Domínguez Barrero (), Julio López-Laborda and Fernando Rodrigo Sauco ()
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Félix Domínguez Barrero: Universidad de Zaragoza
Fernando Rodrigo Sauco: Universidad de Zaragoza

Hacienda Pública Española / Review of Public Economics, 2005, vol. 174, issue 3, 55-86

Abstract: The paper estimates the impact that the differences of taxation in the Spanish Personal Income Tax (IRPF) and Corporate Income Tax (IS) cause in the division of the economic activity between corporate and noncorporate firms. The exercise is based on the approach proposed by Mackie-Mason and Gordon (1997), who specifies the relation between both taxes by means of the construction of a variable that measures the “fiscal distortion” to incorporating. In our research, the fiscal distortion is estimated from the calculation of the “average effective tax rates” for the sole and social proprietors, adapting the methodology established by Devereux and Griffith (1998b). The paper concludes that the tax factors do not turn out to be significant in the organizational decisions of the firms in Spain, and that are the nontax and macroeconomic aspects those that explain the weight of the corporate firms in the managerial activity.

Keywords: Personal Income Tax; Corporate Tax; organizational form; fiscal distortion; average effective tax rate. (search for similar items in EconPapers)
JEL-codes: H24 H25 H32 (search for similar items in EconPapers)
Date: 2005
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