{
  "title": "Do Tax Rates Encourage Entrepreneurial Activity?",
  "publication": "IMF Working Papers, July 1, 1997",
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  "summary": "When the top personal tax rates are above the corporate rate, high-income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes. U.S.",
  "sections": [
    {
      "heading": "Summary / Main finding",
      "content": "- When the top personal tax rates are above the corporate rate, high-income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes.\n- U.S. tax law imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting.\n- Entrepreneurs setting up new firms can more easily reclassify their income for tax purposes, so this tax incentive can favor entrepreneurial activity.\n- The paper discusses how best to subsidize entrepreneurial activity while avoiding other economic distortions."
    },
    {
      "heading": "Key analysis points",
      "content": "- Income-shifting incentives depend on the differential between top personal tax rates and the corporate tax rate.\n- Legal constraints reduce income shifting for employees in publicly traded corporations but are less effective for entrepreneurs forming new firms.\n- Subsidies or tax policy aimed at encouraging entrepreneurship need to account for potential distortions from income reclassification."
    },
    {
      "heading": "Policy discussion and recommendations",
      "content": "- Design subsidies for entrepreneurial activity with attention to:\n  - Preventing income reclassification that simply converts personal income into corporate income without generating genuine entrepreneurial output.\n  - Avoiding other economic distortions that can arise from targeted tax incentives.\n- Consider legal and administrative measures to limit tax-motivated reclassification where appropriate while preserving incentives for productive entrepreneurship."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subject: Corporate income tax, Financial institutions, Labor, National accounts, Personal income, Self-employment, Stocks, Tax incentives, Taxes\n- Keywords: compensation offer, copycat firm, Corporate income tax, corporate tax tax rate, entrepreneurial activity, expected return, firm offer equity, mover accent, Personal income, Self-employment, start-up expense, Stocks, Tax incentives, venture capitalist, WP\n\nRoger H. Gordon \"Do Tax Rates Encourage Entrepreneurial Activity?\", IMF Working Papers 1997, 088 (1997), accessed 8/30/2026, https://doi.org/10.5089/9781451851120.001\n\n---\n\n Content in this bundle\n\n- Do Tax Rates Encourage Entrepreneurial Activity?-WP/97/88\n  - Do Tax Rates Encourage Entrepreneurial Activity?-WP/97/88 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Do Tax Rates Encourage Entrepreneurial Activity?-WP/97/88 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/do-tax-rates-encourage-entrepreneurial-activity-2265"
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    "Authors: Roger H. Gordon",
    "Published: July 1, 1997",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451851120.001",
    "When the top personal tax rates are above the corporate rate, high-income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes.",
    "U.S. tax law imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting.",
    "Entrepreneurs setting up new firms can more easily reclassify their income for tax purposes, so this tax incentive can favor entrepreneurial activity.",
    "The paper discusses how best to subsidize entrepreneurial activity while avoiding other economic distortions.",
    "Income-shifting incentives depend on the differential between top personal tax rates and the corporate tax rate.",
    "Legal constraints reduce income shifting for employees in publicly traded corporations but are less effective for entrepreneurs forming new firms.",
    "Subsidies or tax policy aimed at encouraging entrepreneurship need to account for potential distortions from income reclassification.",
    "Design subsidies for entrepreneurial activity with attention to:",
    "Consider legal and administrative measures to limit tax-motivated reclassification where appropriate while preserving incentives for productive entrepreneurship.",
    "Subject: Corporate income tax, Financial institutions, Labor, National accounts, Personal income, Self-employment, Stocks, Tax incentives, Taxes",
    "Keywords: compensation offer, copycat firm, Corporate income tax, corporate tax tax rate, entrepreneurial activity, expected return, firm offer equity, mover accent, Personal income, Self-employment, start-up expense, Stocks, Tax incentives, venture capitalist, WP",
    "**Do Tax Rates Encourage Entrepreneurial Activity?-WP/97/88**"
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