Output Distortions and the Choice of Legal Form of Organization

Katarzyna Bilicka and Sepideh Raei

No 8756, CESifo Working Paper Series from CESifo

Abstract: We study the distortions to aggregate output created by the differential tax treatment of corporations and pass through entities. We develop an industry equilibrium model in which the legal form of organization is an endogenous choice for firms facing trade off between tax treatment of business income, access to external capital, and the evolution of productivity over time. We match this model to features of the US economy. We find that, relative to the benchmark economy, revenue-neutral tax reform in which legal forms receive the same tax treatments leads to 1.25% increase in the aggregate output.

Keywords: output distortions; legal form of organization; pass through (search for similar items in EconPapers)
JEL-codes: E62 H25 H32 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Output distortions and the choice of legal form of organization (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8756

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