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IFS-STICERD Public Economics Seminar

Capital Taxation and Entrepreneurship

Kate Smith (Institute for Fiscal Studies), joint with Helen Miller

Wednesday 08 December 2021 12:30 - 13:45

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.

About this event

Policymakers often want to encourage entrepreneurial activity. Commonly, they do this through preferential tax rates on business income, but these come with a substantial tax revenue cost. We develop a dynamic model of business ownership to study the effects of tax policy on small businesses. The model allows for a range of responses - including entry, exit, investment and incorporation to a rich set of tax incentives. We incorporate observed and unobserved heterogeneity to account for the wide variation in the small business population, and exploit tax changes to help identify the costs of switching between legal forms. We show that policies that target specific aspects of small business behaviour, as opposed to broadly applied lower tax rates, increase investment and tax revenue, while reducing income shifting and distortions to the choice of legal form. For example, combining the removal of preferential rates of capital gains tax for business owners with tax deductions for new equity investments increases small business investment by 2.5% and tax revenue from this group by 2.4%.

This seminar series is jointly organized by the IFS and STICERD.

IFS-STICERD Public Economics seminars are held on Wednesdays in term time at 12.30-13.45 IN PERSON at the IFS.

Seminar organisers: Stuart Adam (IFS), Monica Costa Dias (IFS), Xavier Jaravel (LSE), Camille Landais (LSE), Attila Lindner (UCL), Joana Naritomi (LSE), and Johannes Spinnewijn (LSE).

For further information please contact Peter Levell: .

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