New Study Finds that High Tax Rates Lower the Chance of Business Survival

A new working paper from the International Monetary Fund (IMF) by economists Serhan Cevik and Fedor Miryugin shows that taxes have an economically important effect on whether firms survive in the marketplace. Amid concern by policymakers and scholars over the fall in business dynamism in the United States, the authors examine whether taxation influences how long firms stay open for business. Tax policy is an important determinant of business success, especially as business formation rates have fallen. Using a dataset of over four million financial firms from 21 countries between 1995 and 2015, the authors find that higher effective marginal tax rates (EMTR) on firms are associated with a lower likelihood of firms surviving over time. Tax rates become especially harmful at high levels, which is something that policymakers should take into account when considering proposals that would raise tax rates to high levels. Older firms are more heavily affected by tax burdens than young…

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