Taxes and entrepreneurial risk-taking: Theory and evidence for the U.S.

Cullen, Julie Berry; Gordon, Roger H.

doi:10.1016/j.jpubeco.2006.12.001

Cited by 266 publications

(215 citation statements)

References 14 publications

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“…In our preferred specification, a reduction of the corporate tax rate from the median (30.08%) to the first quartile (27.57%) implies a 0.880 percentage point increase in the entry rate. We interpret this result on the basis of Cullen and Gordon (2007). They identify two distinct channels through which lower corporate taxation should increase entry by incorporation (through "income shifting" from personal to corporate taxation, and through "risk subsidy" to entrepreneurial activity), and one channel that has the opposite effect (through "risksharing" with the government).…”

Section: Introductionmentioning

confidence: 94%

“…Our study is motivated by the theoretical model of Cullen and Gordon (2007), who suggest that corporate income taxation affects the incorporation decision through three (potentially countervailing) channels, whose net outcome is not a priori clear, neither in terms of size nor in terms of functional form. Moreover, theoretical models that account for strategic and general equilibrium effects also suggests that the taxation of corporate income should deter entry.…”

Section: Introductionmentioning

confidence: 99%

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Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe

Rin

Giacomo

Sembenelli

2011

Journal of Public Economics

119

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Can tax policy foster the creation of new companies? To answer this question, we assemble a novel country-industry level panel database with data on entry (by incorporation) for 17 European countries between 1997 and 2004. Our analysis is based on recent models of how corporate taxation affects firm's incorporation decision, We compute effective average tax rates and study how the taxation of corporate income affects entry rates at the country-industry level. Drawing on the political economy literature, we account for the possible endogeneity of taxation. We find a significant negative effect of corporate income taxation on entry rates. The effect is concave and suggests that tax reductions affect entry rates only below a certain threshold tax level. We also find that a reduction in corporate tax rates is more effective in countries with better institutional infrastructure. Our results are robust to alternative measures of effective taxation and to the use of alternative and additional explanatory variables.JEL CODES: C23, H32, L51, M13.

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Section: Introductionmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 99%

Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe

Rin

Giacomo

Sembenelli

2011

Journal of Public Economics

119

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“…28 A Swedish study estimates that the self-employed underreport their income by 30 percent (Engström and Holmlund 2009). 29 A recent discussion of this effect provided in Cullen and Gordon (2007). Notably, in practice, no tax system has full loss offset.…”

Section: The Tax Systemmentioning

confidence: 99%

“…At the micro level, a patchwork of research contributions stress that entrepreneurship and innovation have different critically important prerequisites, such as education (Kuratko 2005;Béchard and Grégoire 2005), the labor market (Poschke 2013), taxes (Cullen and Gordon 2007), and regional dimensions (Saxenian 1994), but this research neglects growth effects. 3 Mapping this analytically fragmented terrain in a comprehensive framework for growth and combining a dispersed and diverse microeconomic setting with the macroeconomic outcome remains unchartered territory.…”

Section: Introductionmentioning

confidence: 99%

An Innovation Policy Framework: Bridging the Gap Between Industrial Dynamics and Growth

Braunerhjelm

Henrekson

2016

International Studies in Entrepreneurship

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: This paper examines policy measures that foster the creation of innovations with high inherent potential and that simultaneously provide the right incentives for individuals to create and expand firms that disseminate such innovations in the form of highly valued products. In so doing, we suggest an innovation policy framework based on two pillars: (i) the accumulation, investment, and upgrading of knowledge and (ii) the implementation of mechanisms that enable knowledge to be exploited such that growth and societal prosperity are encouraged. Knowledge is a necessary but far from sufficient condition for growth. To secure industrial dynamics and growth in the long term, institutions must be designed both to encourage sophisticated knowledge investments and to stimulate the creation, diffusion and productive use of knowledge in all sectors of the economy. We argue that the latter area has been overlooked in the policy discussion and that a coherent innovation policy framework must include tax policy, labor market regulation, savings channeling, competition policy, housing market regulation, and infrastructure to foster growth and future prosperity. Terms of use: Documents inJEL Classification: J24, O31, O32, O57.

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“…While the original paper focuses on a proportional tax system, a progressive tax exhibits an even stronger "insurance" effect by reducing the variance of after-tax income. Cullen and Gordon (2007) present a more comprehensive model that integrates the two effects, and a third effect, the "income shifting"…”

Section: Risk Attitudes and Entrepreneurial Choicementioning

confidence: 99%

Risk Attitudes and Private Business Equity

Fossen¹

2012

Oxford Handbooks Online

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract:Why do people engage in entrepreneurship and commit large parts of their personal wealth to their business, despite comparably low returns and high risk? This paper connects several streams of literature to shed some light on this puzzle and suggests possible future research avenues. Key insights from the literature are that entrepreneurs may operate in imperfect financial markets and that entrepreneurs are less risk-averse than the rest of the population. A focus of this paper is, therefore, on the role of heterogeneous risk attitudes in entrepreneurial decisions, specifically portfolio choice and the entry and exit decisions. Nonpecuniary benefits of entrepreneurship, such as being independent in the workplace, also contribute to an explanation of entrepreneurial behavior.

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Taxes and entrepreneurial risk-taking: Theory and evidence for the U.S.

Cited by 266 publications

References 14 publications

Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe

Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe

An Innovation Policy Framework: Bridging the Gap Between Industrial Dynamics and Growth

Risk Attitudes and Private Business Equity

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