Selected Publications

Guo: New Employer Payroll Taxes and Entrepreneurship

Abstract:

How costly are taxes for young firms? In this paper, we demonstrate that even small payroll taxes significantly distort entry, growth, and hiring decisions. First, leveraging cross-sectional variation in the tax rates faced by new employers, we find that higher taxes discourage new firms from hiring their first workers, with an elasticity of the number of new employers to taxes of -0.11. Second, studying changes in tax rates after entry, we find that higher taxes lead more firms to exit, while also reducing employment for those who survive and leading some firms to avoid taxes by using non-taxable contract labor.