Some additional evidence on the interplay between corruption, tax policy and firm entry using US states

ABSTRACT

The effects that corruption and tax policy have on entrepreneurship and firm growth have been often studied in the literature. This current article adds to that literature by evaluating how the interaction effect between corruption and tax policy influences firm entry at the US state level, using a panel data set of all 50 US states between 2001 and 2014. Overall, the findings are consistent with the literature and suggest that while high levels of corruption and relatively burdensome tax policy have a negative effect on firm entry, high levels of corruption tend to dampen the negative effects associated with relatively high tax rates. Potential policy implications are discussed within this article.

KEYWORDS:

• Entrepreneurship
• corruption
• tax policy
• firm entry
• business formation

JEL CLASSIFICATION:

• D22
• D73
• H71
• H77
• M13

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Data are freely available at http://www.bls.gov/bdm/bdmstate.htm. The birth rate is a percentage of the previous and current quarter’s total number of establishments in a state, averaged together.

² Data are freely available at http://taxfoundation.org/article/state-corporate-income-tax-rates.

³ This information is also freely available at https://www.justice.gov/criminal/pin.

⁴ See Glaeser and Saks (2006) for further information and discussion of this measure.

⁵ Corruption data for Georgia were not available in 2000. Therefore, this value is linearly interpolated.