Corporate Income Tax, Legal Form of Organization, and Employment

Daphne Chen, Shi Qi and Don Schlagenhauf

American Economic Journal: Macroeconomics, 2018, vol. 10, issue 4, 270-304

Abstract: A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of legal form of organization. A reduction in the corporate income tax burden encourages adoption of the C corporation legal form, which reduces capital constraints on firms. Improved capital reallocation increases overall productive efficiency in the economy and therefore expands the labor market. Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent.

JEL-codes: E24 H25 H32 J23 J24 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mac.20140103
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: Corporate Income Tax, Legal Form of Organization, and Employment (2018)
Working Paper: Corporate Income Tax, Legal Form of Organization, and Employment (2017)
Working Paper: Corporate income tax, legal form of organization, and employment (2014)
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