ENTREPRENEURSHIP AND TAXATION: RELATIONSHIP BETWEEN THE CORPORATE TAX RATE AND THE NEW BUSINESS FORMATION IN THE CZECH REPUBLIC

Economic and tax policies are important factors for shaping the regional entrepreneurship ecosystems. The tax policies may affect the decision of foreign and domestic entrepreneurs to establish their own business activity, because taxes are part of the costs, which entrepreneurs have to pay regularly. In a tax-competitive world, business founders, may easily register their companies in tax paradises, offering them zero or low corporate tax rates. Policy makers may adjust the tax policies by lowering taxes, with expectations of the increase in new business registrations. The objective of this study was to quantify the relationship between the corporate income tax rate and the new business formation in the Czech regions, during the period of years 2000-2015. To investigate the relationship, panel regressions with fixed effects were estimated. Obtained results, controlled for the traditional determinants of entrepreneurship, proved statistically significant negative influence of the tax rate on the new business formation. This finding has important implications for the Czech policy makers.