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Taxes and Entrepreneurial Endurance: Evidence from the Self-Employed

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  • Bruce, Donald

Abstract

Do taxes drive entrepreneurs out of business? This paper uses panel data on self-employed workers to examine whether differential income and payroll taxes affect their decisions to continue operating or to close their doors and take wage-and-salary jobs. I exploit statutory variations in the tax treatment of wage and self-employment income using data from the Panel Study of Income Dynamics. Taking into account the endogeneity of individual-level tax rates, I find that higher relative marginal tax rates on self-employment income do not necessarily increase the probability of exit.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 55 (2002)
Issue (Month): N. 1 (March)
Pages: 5-24

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Handle: RePEc:ntj:journl:v:55:y:2002:i:n._1:p:5-24

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  1. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
  2. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  3. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
  4. 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.
  5. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey S. Rosen, 2001. "Personal Income Taxes and the Growth of Small Firms," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 121-148 National Bureau of Economic Research, Inc.
  6. Marsha Blumenthal & Charles Christian & Joel Slemrod, 1998. "The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota," NBER Working Papers 6575, National Bureau of Economic Research, Inc.
  7. Donald Bruce & Douglas Holtz-Eakin & Joseph F. Quinn, 2000. "Self-Employment and Labor Market Transitions at Older Ages," Boston College Working Papers in Economics 490, Boston College Department of Economics.
  8. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey S. Rosen, 1998. "Entrepreneurs, Income Taxes, and Investment," NBER Working Papers 6374, National Bureau of Economic Research, Inc.
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