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A Risky Venture: Income Dynamics among Pass-Through Business Owners

Author

Listed:
  • Jason DeBacker
  • Vasia Panousi
  • Shanthi Ramnath

Abstract

We employ a large panel of US income tax returns for the period 1987–2018 to extensively characterize and quantify business income risk. Our findings show business income to be much riskier than labor income. Business income is less persistent and is characterized by higher tail risk. Furthermore, when compared to labor income, heterogeneity across households is less important in explaining the cross-sectional variation in business income, and within-household income variation is more important. Our results underscore the income risks business owners face and provide stylized facts and parameter estimates useful for quantitative macroeconomic models and policy analysis.

Suggested Citation

  • Jason DeBacker & Vasia Panousi & Shanthi Ramnath, 2023. "A Risky Venture: Income Dynamics among Pass-Through Business Owners," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(1), pages 444-474, January.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:1:p:444-74
    DOI: 10.1257/mac.20200134
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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