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Do Tax Cuts Promote Entrepreneurial Longevity?

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  • Gurley–Calvez, Tami
  • Bruce, Donald

Abstract

We use a 12–year panel of tax return data to assess whether or not taxes affect the duration of entrepreneurial activities. Our study is the first to examine the effects of tax rates on exit decisions using duration–analysis techniques. We find convincing evidence that cutting marginal tax rates faced by wage–and–salary workers can reduce the duration of entrepreneurial activities, while cutting marginal tax rates faced by entrepreneurs can lengthen entrepreneurial spells. The relative magnitudes of these effects suggest that an across–the–board tax cut would increase entrepreneurial longevity.

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Bibliographic Info

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

Volume (Year): 61 (2008)
Issue (Month): 2 (June)
Pages: 225-50

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Handle: RePEc:ntj:journl:v:61:y:2008:i:2:p:225-50

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  1. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
  2. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey S. Rosen, 2000. "Personal Income Taxes and the Growth of Small Firms," NBER Working Papers 7980, National Bureau of Economic Research, Inc.
  3. Schuetze, Herb J., 2000. "Taxes, economic conditions and recent trends in male self-employment: a Canada-US comparison," Labour Economics, Elsevier, Elsevier, vol. 7(5), pages 507-544, September.
  4. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
  5. Jamaes P. Ziliak & Thomas J. Kniesner, 2003. "The Effect of Income Taxation on Consumption and Labor Supply," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 54, Center for Policy Research, Maxwell School, Syracuse University.
  6. Anna L. Paulson & Robert M. Townsend & Alexander Karaivanov, 2006. "Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(1), pages 100-144, February.
  7. 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.
  8. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, Elsevier, vol. 7(5), pages 545-574, September.
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Cited by:
  1. José María Millán & Emilio Congregado & Concepción Román, 2010. "Determinants of Self-Employment Dynamics and their Implications on Entrepreneurial Policy Effectiveness," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, Universidad de Antioquia, Departamento de Economía, issue 72, pages 45-76.
  2. José Millán & Emilio Congregado & Concepción Román, 2012. "Determinants of self-employment survival in Europe," Small Business Economics, Springer, Springer, vol. 38(2), pages 231-258, February.
  3. Jeffrey S. Smith & James E. West, 2012. "Retirement Pay and Officer Retention," NBER Working Papers 18502, National Bureau of Economic Research, Inc.
  4. Gale, William & Brown, Samuel, 2013. "Small Business, Innovation, and Tax Policy: A Review," MPRA Paper 57384, University Library of Munich, Germany.
  5. Amelia Biehl & Tami Gurley-Calvez & Brian Hill, 2014. "Self-employment of older Americans: do recessions matter?," Small Business Economics, Springer, Springer, vol. 42(2), pages 297-309, February.
  6. Tami Gurley-Calvez & Brian Hill, 2011. "Time to Retire? The Effect of State Fiscal Policies on Retirement Decisions," American Economic Review, American Economic Association, American Economic Association, vol. 101(3), pages 35-39, May.
  7. Richard Kneller & Danny McGowan, 2012. "Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries," Working Papers 12006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

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