NBER

Brian Wheaton

Harvard University
Economics Dept
Cambridge, MA 02138

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Harvard University

NBER Working Papers and Publications

November 2019Taxes, Incorporation, and Productivity
with Robert J. Barro
in Tax Policy and the Economy, Volume 34, Robert A. Moffitt, editor
US businesses can be C-corporations or pass-throughs in the forms of S-corporations and partnerships. C-corporate form confers benefits from perpetual existence, limited liability, potential for public trading of shares, and ability to retain earnings. However, legal changes especially since the 1980s have improved the status of pass-throughs. The C-corporate form has typically been subject to a tax wedge, which has diminished since the 1960s. In our formal model, the tax wedge determines the fraction of firms opting for C-corporate form, the level of output (business productivity), and the C-corporate share of output. This framework underlies our empirical analysis, wherein long-difference regressions for 1978–2013 show that a higher tax wedge reduces the C-corporate share of net capital ...
January 2019Incorporation, and Productivity
with Robert J. Barro: w25508
Corporate versus pass-through status trades off benefits (perpetual identity, limited liability, public trading, earnings retention) against tax wedges, estimated from U.S. taxes on corporate profits, dividends, and partnership income. In regressions, C-corporate economic shares decline with the wedge and exhibit negative trends related to legal changes for LLCs. A calibrated model, fit to TFP and corporate shares, implies that, for 1958-2013, the declining wedge and gap between corporate and pass-through productivity contributed 0.37% per year of a TFP growth rate of 1.09%. From 1994 to 2004, the falling productivity gap contributed 0.77% per year to the TFP growth of 2.00%.

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