Do High Corporate Income Tax Rates Demotivate Entrepreneurs? The Case of Azerbaijan

The purpose of this paper is to investigate whether corporate income tax rates affect the motivation of entrepreneurs to begin an entrepreneurial activity or not. Because of that we examine how corporate income taxes affect entrepreneurs in Azerbaijan using data in the period between the first quarter of 2004 and the fourth quarter of 2013. Here, simple correlation analysis, impulse-response function analysis, and Johansen co-integration test has been used for the long and short term relationship. The empirical results provide evidence that higher corporate income tax rates exert a slightly positive influence on entrepreneurs in the short-run. However, in the long-run these results are insignificant. We find that the main factors behind this are the application of a simplified tax system of the Tax Code of Azerbaijan Republic that caused a rise in the rate of small entrepreneurship subjects. This paper sheds light on the relationship between corporate income tax rates and the number of entrepreneurs, and provides the place for future researches