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Payroll Taxes and the Decision to be Self-Employed

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  • Mark Stabile

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Abstract

This paper investigates and quantifies the role of payroll taxes in the decision to be self-employed. It examines the effects of introducing into the labour market a payroll tax which taxes employers, but which exempts the self-employed. It exploits two changes in the tax legislation to confirm that it is changes in legislation and not other sector specific trends that are driving the results. Our findings suggest that payroll taxes do indeed influence the decision to be self-employed, with the probability of self-employment increasing as taxes on employees increase and vice versa. Furthermore, there appear to be declines in the return to self-employment caused by the tax, possibly due to inefficient allocation of labour towards self-employment. Copyright Kluwer Academic Publishers 2004

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File URL: http://hdl.handle.net/10.1023/B:ITAX.0000004776.42301.76
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 11 (2004)
Issue (Month): 1 (January)
Pages: 31-53

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Handle: RePEc:kap:itaxpf:v:11:y:2004:i:1:p:31-53

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: payroll taxes; self-employed;

References

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  1. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
  2. Michael Baker, 2002. "The Retirement Behavior of Married Couples: Evidence from the Spouse's Allowance," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 1-34.
  3. repec:fth:prinin:279 is not listed on IDEAS
  4. Schuetze, Herb J., 2000. "Taxes, economic conditions and recent trends in male self-employment: a Canada-US comparison," Labour Economics, Elsevier, vol. 7(5), pages 507-544, September.
  5. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
  6. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
  7. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  8. Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
  9. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
  10. Baker, Michael & Benjamin, Dwayne, 1999. "Early Retirement Provisions and the Labor Force Behavior of Older Men: Evidence from Canada," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 724-56, October.
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Citations

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Cited by:
  1. Kamhon Kan & Yen-Ling Lin, 2009. "The labor market effects of national health insurance: evidence from Taiwan," Journal of Population Economics, Springer, vol. 22(2), pages 311-350, April.
  2. Atalay, Kadir & Kim, Woo-Yung & Whelan, Stephen, 2013. "The Decline of the Self-Employment Rate in Australia," Working Papers 2013-03, University of Sydney, School of Economics.
  3. Mina Baliamoune-Lutz & Pierre Garello, 2011. "Tax Structure And Entrepreneurship," Post-Print halshs-00706942, HAL.
  4. Stenkula, Mikael, 2009. "Taxation and Entrepreneurship in a Welfare State," Working Paper Series 800, Research Institute of Industrial Economics.
  5. Simon C. Parker, 2010. "Contracting Out, Public Policy And Entrepreneurship," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(2), pages 119-144, 05.
  6. Åsa Hansson, 2012. "Tax policy and entrepreneurship: empirical evidence from Sweden," Small Business Economics, Springer, vol. 38(4), pages 495-513, May.
  7. Jean-Francois Wen & Daniel V. Gordon, 2014. "An Empirical Model of Tax Convexity and Self-Employment," Working Papers 2014-33, Department of Economics, University of Calgary, revised 03 Feb 2014.

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