Owner-Level Taxes and Business Activity

Examines advances in theoretical and empirical research that paint a clearer picture of the effects of owner-level taxation on business activity. Commonly used macroeconomic models tend to find that taxes at the owner level are ""neutral"" with little or no effect on firm activity. However, these models are based on unrealistic simplifications.

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Owner-Level Taxes and Business Activity examines advances in both theoretical and empirical research that paint a clearer picture of the effects of owner-level taxation on business activity. Commonly used macroeconomic models tend to find that taxes at the owner level are "neutral" and have little or no effect on firm activity. However, the conclusion that ownership taxation has no effect on firm behaviour - and on entrepreneurship - is derived from models based on unrealistic simplifications. When complex and more realistic dimensions such as entrepreneurship and corporate governance are incorporated into these models, taxes can affect business activity through these channels. A key lesson from this monograph is that the models used in economics are necessarily simplified. Moreover, it is important for political decision makers to be conscious of these simplifications when the conclusions derived from economic models motivate or are used to justify tax policy decisions. Conclusions from overly simplified models - such as the model that concludes that dividend taxes do not influence firm behaviour - may thus change when additional factors are considered.