Can tax policy foster the creation of new companies? To answer this question, we assemble a novel country-industry level panel database with data on entry (by incorporation) for 17 European countries between 1997 and 2004. Our analysis is based on recent models of how corporate taxation affects firm's incorporation decision. We compute effective average tax rates and study how the taxation of corporate income affects entry rates at the country-industry level. Drawing on the political economy literature, we account for the possible endogeneity of taxation. We find a significant negative effect of corporate income taxation on entry rates. The effect is concave and suggests that tax reductions affect entry rates only below a certain threshold tax level. We also find that a reduction in corporate tax rates is more effective in countries with better institutional infrastructure. Our results are robust to alternative measures of effective taxation and to the use of alternative and additional explanatory variables.

Corporate income taxation influences the quantity and type of entrepreneurship, which in turn affects economic development. Empirical evidence shows that higher corporate income tax rates reduce business density and entrepreneurship entry rates and increase the capital size of new firms. The progressivity of tax rates increases entrepreneurship entry rates, whereas highly complex tax codes reduce them. Policymakers should understand the effects and underlying mechanisms that determine how corporate income taxation influences entrepreneurship in order to provide a favorable business environment.

Recoge: 1. Introduction - 2. The corporate tax rate-revenue paradox - 3. Corporate taxation and income shifting - 4. Data - 5. Empirical analysis - 6. Conclusions.

We study whether corporate income taxation affects the long-term growth of newly incorporated companies through its effect on their choice of leverage at entry. We find that a decrease in corporate income taxation leads to a sizeable decrease in leverage at entry, and that the distribution of leverage at entry is persistent over several years. This effect on initial conditions has long-term implications: we document an inverted-U relationship between leverage at entry and long-term corporate growth, conditional on survival. These effects are economically sizeable and stronger in countries with better creditor rights and more transparent financial transactions.

Seventeen in a series of annual reports comparing business regulation in 190 economies, Doing Business 2020 measures aspects of regulation affecting 10 areas of everyday business activity.