Munich Personal RePEc Archive

The Role of Corporate Taxes in the Decline of the Startup Rate

Neira, Julian and Singhania, Rish (2017): The Role of Corporate Taxes in the Decline of the Startup Rate.

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Abstract

The business startup rate in the United States has exhibited a large secular decline in recent decades. The reasons behind the decline are not well understood. This paper hypothesizes that the startup rate declined in large part because corporate taxes raised the opportunity cost of entrepreneurship. We formalize this thesis using a model of occupational choice that features firm entry and exit. Quantitatively, the model accounts for much of the decline in the startup rate. Taxes alone account for one-fifth of the decline. Cross-sectoral patterns in US data support our results.

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