Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Gravelle, Jane G.; Kotlikoff, Laurence J.

doi:10.1111/j.1465-7295.1993.tb00887.x

Cited by 22 publications

(7 citation statements)

References 6 publications

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“…Our results differ dramatically from those in Gravelle and Kotlikoff (1989, 1993) (hereafter GK). In their 1989 article they calculate in their base case that the excess burden generated by the tax distortion to the choice of organizational form equals 109 percent of the revenue raised 22 .…”

Section: Empirical Analysiscontrasting

confidence: 99%

“…But are these nontax factors so dominant that taxes do not in practice influence a firm's choice of organizational form? As Gravelle and Kotlikoff (1989, 1993) emphasize, tax‐induced changes in firms' choices of organizational form in principle can create large excess burdens. The size of these excess burdens in practice depends on the extent to which firms respond to these tax incentives.…”

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confidence: 99%

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How Much Do Taxes Discourage Incorporation?

MacKie-Mason

Gordon

1997

The Journal of Finance

114

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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.

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Section: Empirical Analysiscontrasting

confidence: 99%

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confidence: 99%

How Much Do Taxes Discourage Incorporation?

MacKie-Mason

Gordon

1997

The Journal of Finance

114

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“…This assumption is in line with several statements of legislators (Wagner 2006: 101). The claim for organizational form neutrality also finds support by economic researchers estimating the efficiency losses resulting from tax systems that are non-neutral with respect to the organizational form (e.g., Gravelle and Kotlikoff 1993;Goolsbee 1998). However, we acknowledge that there is an ongoing controversial discussion about the desirability of organizational form neutrality (e.g., Wagner 2006;Ewert and Niemann 2012).…”

Section: Introductionsupporting

confidence: 57%

Interest deductibility restrictions and organizational form

Blaufus

Kreinacke

Mantei

2014

Bus Res

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Using a theoretical model for risky investment decisions, we study the effect of interest deductibility restrictions on the choice of organizational form. We analyze the two most widely used approaches: first, rules that limit the interest deductibility if the firm’s leverage exceeds a specific level, and second, rules that restrict the interest deduction if the interest expenses exceed a specific percentage of the firm’s earnings. Although these restrictions apply uniformly for partnerships and corporations in many countries, we find that they usually distort the choice of organizational form. We demonstrate that only leverage-based interest deductibility restrictions can in theory be modified to achieve organizational form neutrality. However, this requires a legal form dependent application or absence of dividend taxation and in any case a full loss offset which is in contrast to current law in many countries. If one considers corporate loss offset limitations, both types of interest deductibility restrictions always distort the choice of organizational form. Thus, the introduction of interest deductibility restrictions is actually in conflict with the legislators’ often declared aim to design tax systems that are neutral with respect to the choice of organizational form.

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“…Several extensions of Harberger's seminal closed economy model have since been undertaken; some reinforce his conclusion that capital bears the bulk of the burden of the CIT, others question it. For example, Gravelle and Kotlikoff (1993) extend the model to allow for product differentiation and conclude that capital continues to bear the bulk of the CIT's burden under reasonable parameterizations. On the other hand, in their classic public economics book, Atkinson and Stiglitz (1980) introduce several market imperfections into the analysis and show that Harberger's result that capital bears the bulk of the tax's burden may no longer hold in some cases.…”

Section: The Indirect Effectmentioning

confidence: 99%

Who Pays the Corporate Tax? Insights from the Literature and Evidence for Canadian Provinces

McKenzie

Ferede

2017

SSRN Journal

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Who bears the burden, or incidence, of the corporate income tax (CIT)? This is an important, if not somewhat contentious, policy issue. In this paper we provide a discussion of the existing research on the question, viewing it through a Canadian policy lens. We also use some new results from a companion technical paper, which undertakes one of the few empirical investigations of the issue using Canadian data, to discuss the implications of increases in corporate taxes for wages in Canadian provinces. While it is clear that people, not corporate entities, ultimately bear the burden of corporate taxes, a key question is which people? The answer to this question has important implications for the equity, or fairness, of the tax system. Much of the recent focus in policy discussions concerns the allocation of the burden of the CIT between owners of capital and labour. Since income from capital tends to be concentrated with wealthier individuals, if the burden of the CIT falls mostly on the owners of capital, it increases the progressivity of the tax system. On the other hand, if the tax is borne mostly by labour through lower wages, the CIT is less progressive. Much of the research into the incidence of the CIT has employed theoretical simulation models. Early models of this type, which were based on a closed economy with fixed supplies of labour and capital, suggested that most of the burden of the CIT would be borne by the owners of capital throughout the economy, and not just the shareholders of firms in the corporate sector. Subsequent extensions of those models into a small open economy setting, †

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Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Cited by 22 publications

References 6 publications

How Much Do Taxes Discourage Incorporation?

How Much Do Taxes Discourage Incorporation?

Interest deductibility restrictions and organizational form

Who Pays the Corporate Tax? Insights from the Literature and Evidence for Canadian Provinces

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