A corporate income tax cut can reduce the non-employment rate by up to 7pct

Corporate Income Tax, Legal Form of Organization, and Employment. Daphne Chen, Shi Shao Qi and Don Schlagenhauf. Federal Reserve Working Paper, July 2017, https://research.stlouisfed.org/wp/2014/2014-018.pdf

Abstract: A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of the legal form of organization (LFO). A reduction in the corporate income tax burden encourages adoption of the C corporation legal form, which reduces capital constraints on firms. Improved capital re-allocation increases overall productive efficiency in the economy and therefore expands the labor market. Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent.