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How Much Do Taxes Discourage Incorporation?
Author(s) -
MACKIEMASON JEFFREY K.,
GORDON ROGER H.
Publication year - 1997
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1997.tb04810.x
Subject(s) - taxable income , distortion (music) , corporate tax , monetary economics , revenue , business , income tax , tax revenue , economics , double taxation , labour economics , tax avoidance , public economics , accounting , finance , amplifier , cmos , electronic engineering , engineering
The double taxation of corporate income should discourage firms from incorporating. We investigate the extent to which the aggregate allocation of assets and taxable income in the United States between corporate and noncorporate firms responds to the size of this tax distortion during the period 1959–1986. In theory, profitable firms should shift out of the corporate sector when the tax distortion is large, and conversely for firms with tax losses. Our empirical results provide strong support for these forecasts, and imply that the resulting excess burden equals 16 percent of business tax revenue.