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Taxes, tax administrative burdens and new firm formation
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.
2014 (English)In: Kyklos (Basel), ISSN 0023-5962, E-ISSN 1467-6435, Vol. 67, no 1, 1-11 p.Article in journal (Refereed) Published
Abstract [en]

This paper examines the tax administrative burden and its effect on new firm formation. It is well recognized that entrepreneurship and new firm formation are critical factors in determining economic growth and development. New firm entry into the marketplace enhances welfare in two distinct ways: 1) by promoting innovation, productivity and economic growth and 2) by increasing competition, which lowers prices and expands output. It is also well documented that barriers to entry reduce the likelihood that new firms will enter various sectors. We argue that the burden imposed by tax codes and tax compliance constitutes a barrier to entry that has been neglected in the previous literature. We use data from the World Bank to measure the administrative burden that the complexity of tax policy imposes on new firms. Additionally, we use a measure of new firm formation - entry density. Our data cover 118 countries over a period of six years. We find that the entry rate is significantly reduced by the tax administrative burden and that this effect is unrelated to general taxes on corporate profits and is robust to the inclusion of several important control variables.

Place, publisher, year, edition, pages
2014. Vol. 67, no 1, 1-11 p.
Keyword [en]
Liquidity Constraints, Entrepreneurship, Entry, Productivity, Investment, Innovation, Employment, Choice, Growth, Rates
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-140367DOI: 10.1111/kykl.12040ISI: 000329167200001ScopusID: 2-s2.0-84891474559OAI: diva2:690466

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Available from: 2014-01-23 Created: 2014-01-23 Last updated: 2014-01-23Bibliographically approved

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