The Rise of Pass-Throughs: an Empirical Investigation

Pass-through entities have emerged as the leading U.S. business organization form in recent decades. Using comprehensive confidential administrative data, this paper highlights five core findings: (1) the rise in pass-throughs is pervasive across industries and states; (2) the pass-through share converges unconditionally across both; (3) 60% of the rise is driven by entrants’ organizational choices; (4) shifts in firm and organizational dynamics following the 1986 Tax Reform Act show continued effects through the 2000s; (5) organizational forms exhibit high persistence with little lifecycle variation. Our study implies that tax or regulatory policy changes might take decades to fully manifest.