Incorporation, and Productivity

Corporate versus pass-through status trades off benefits (perpetual identity, limited liability, public trading, earnings retention) against tax wedges, estimated from U.S. taxes on corporate profits, dividends, and partnership income. In regressions, C-corporate economic shares decline with the wedge and exhibit negative trends related to legal changes for LLCs. A calibrated model, fit to TFP and corporate shares, implies that, for 1958-2013, the declining wedge and gap between corporate and pass-through productivity contributed 0.37% per year of a TFP growth rate of 1.09%. From 1994 to 2004, the falling productivity gap contributed 0.77% per year to the TFP growth of 2.00%.