NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Personal Income Taxes and the Growth of Small Firms

Robert Carroll, Douglas Holtz-Eakin, Mark Rider, Harvey S. Rosen

NBER Working Paper No. 7980
Issued in October 2000
NBER Program(s):   PE

This paper investigates the effect of entrepreneurs' personal income tax situations on the growth rates of their enterprises. We analyze the personal income tax returns of a large number of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates associated with that law affected the growth of their firms as measured by gross receipts. We find that individual income taxes exert a statistically and quantitatively significant influence on firm growth rates. Raising the sole proprietor's tax price (one minus the marginal tax rate) by 10 percent increases receipts by about 8.4 percent. This finding is consistent with the view that raising income tax rates discourages the growth of small businesses.

download in pdf format
   (203 K)

email paper

A non-technical summary of this paper is available in the April 2001 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (203 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7980

Published: Personal Income Taxes and the Growth of Small Firms, Robert Carroll, Douglas Holtz-Eakin, Mark Rider, Harvey S. Rosen. in Tax Policy and the Economy, Volume 15, Poterba. 2001

Users who downloaded this paper also downloaded these:
Carroll, Holtz-Eakin, Rider, and Rosen Personal Income Taxes and the Growth of Small Firms
Carroll, Holtz-Eakin, Rider, and Rosen w6374 Entrepreneurs, Income Taxes, and Investment
Carroll, Holtz-Eakin, Rider, and Rosen w6578 Income Taxes and Entrepreneurs' Use of Labor
Engen and Skinner w5826 Taxation and Economic Growth
Gordon and Cullen w9015 Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S.
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us