American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Corporate Income Tax, Legal Form of Organization, and Employment
American Economic Journal: Macroeconomics
vol. 10,
no. 4, October 2018
(pp. 270–304)
(Complimentary)
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.Citation
Chen, Daphne, Shi Qi, and Don Schlagenhauf. 2018. "Corporate Income Tax, Legal Form of Organization, and Employment." American Economic Journal: Macroeconomics, 10 (4): 270–304. DOI: 10.1257/mac.20140103Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
- J23 Labor Demand
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
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