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Corporate Income Tax, Legal Form of Organization, and Employment

Daphne Chen (), Shi Qi and Don Schlagenhauf

No 2017-21, Working Papers from Federal Reserve Bank of St. Louis

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 the legal form of organization (LFO). A reduction in the corporate income tax burden encourages adoption of the C corporation legal form, which reduces capital constraints on ?rms. Improved capital re-allocation increases overall productive e?ciency 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.

Keywords: Corporate Income Tax; Legal form of Organization; Employment (search for similar items in EconPapers)
JEL-codes: E02 E24 E60 L22 (search for similar items in EconPapers)
Date: 2017-07-31
New Economics Papers: this item is included in nep-dge, nep-ent, nep-mac and nep-pbe
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Related works:
Journal Article: Corporate Income Tax, Legal Form of Organization, and Employment (2018) Downloads
Working Paper: Corporate Income Tax, Legal Form of Organization, and Employment (2018) Downloads
Working Paper: Corporate income tax, legal form of organization, and employment (2014) Downloads
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DOI: 10.20955/wp/2017.021

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