This paper provides theory and firm-level evidence on the incorporation decision of entrepreneurs in a model of corporate governance and taxation. The theory explains how the incorporation decision of entrepreneurs is driven by taxation (corporate and personal income taxes), corporate...

The paper compares the impact of corporate taxation and social insurance on foreign direct investment (FDI) and unemployment. Four main results are derived: (i) the optimal size of the welfare state depends on the degree of risk-aversion and the unemployment rate as a measure of labor income...