TY  - JOUR
AU  - MacKie-Mason,Jeffrey K.
AU  - Gordon,Roger H.
TI  - How Much Do Taxes Discourage Incorporation.
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3781
PY  - 1991
Y2  - July 1991
UR  - http://www.nber.org/papers/w3781
L1  - http://www.nber.org/papers/w3781.pdf
N1  - Author contact info:
Jeffrey K. MacKie-Mason
Department of Economics
462 Lorch Hall
Ann Arbor, MI  48109-1220
Tel: 47/228-55127 or 47/2285-5035 fax
E-Mail: jmm@umich.edu

Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu
AB  - One of the most basic distortions created by the double taxation of corporate income is the disincentive to incorporate. In this paper, we investigate the extent to which the aggregate allocation of assets and taxable income in the U.S. between corporate vs. noncorporate forms of organization during the period 1959-86 has responded to the size of the tax distortion discouraging firms from incorporating. In theory, profitable firms should shift out of the corporate sector when the tax distortion to incorporating is larger, and conversely for firms with tax losses. Our empirical results provide strong support for these theoretical forecasts, and hold consistently across a wide variety of specifications and measures of the tax variables. Measured effects are small, however, throwing doubt on the economic importance of tax-induced changes in organizational form.
ER  -