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

In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on firm births and legal form of...