Do Tax Rates Encourage Entrepreneurial Activity?

Roger Gordon

No 1997/088, IMF Working Papers from International Monetary Fund

Abstract: When the top personal tax rates are above the corporate rate, high-income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes. U.S. tax law at least imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting. However, entrepreneurs setting up new firms can easily reclassify their income for tax purposes. This tax incentive therefore favors entrepreneurial activity. The paper discusses how best to subsidize entrepreneurial activity while avoiding other economic distortions.

Keywords: WP; venture capitalist; mover accent; expected return; start-up expense; copycat firm; corporate tax tax rate; firm offer equity; entrepreneurial activity; compensation offer; Corporate income tax; Personal income; Stocks; Self-employment; Tax incentives (search for similar items in EconPapers)
Pages: 35
Date: 1997-07-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=2265 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1997/088

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().