Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
How costly are taxes for young firms? In this paper, we demonstrate that even small payroll taxes significantly distort hiring decisions and employment growth. First, we leverage cross-sectional variation in the taxes faced by new employers to study how these taxes affect entrepreneurs’ decisions to become employers. We find that higher taxes discourage new firms from hiring their first workers; we estimate an elasticity of the number of new employers to taxes of −0.1. Second, we study tax changes a new employer faces after it enters. 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.