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Do Tax Rates Encourage Entrepreneurial Activity?
Author:
Mr. Roger H. Gordonnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 088
Language:
English
Publication Date:
01 Jul 1997
DOI:
https://doi.org/10.5089/9781451851120.001
ISBN:
9781451851120
ISSN:
1018-5941
Pages:
35
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1997: Issue 088