An Empirical Model of Tax Convexity and Self-Employment
AbstractDo progressive marginal income tax rates discourage self-employment? We assume risk neutrality to construct an implicit surtax on stochastic income relative to steady income, arising from a convex tax schedule. It is computed as part of a structural probit model with earnings equations and a tax simulator. The tax convexity variable and the net-of-tax income difference between self- and paid-employment have the predicted signs and high levels of statistical signifiÂ…cance for the probability of self-employment. A simulated Â‡at tax reform suggests the tax effects are small.
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Bibliographic InfoPaper provided by Department of Economics, University of Calgary in its series Working Papers with number 2014-33.
Date of creation: 03 Feb 2014
Date of revision: 03 Feb 2014
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-15 (All new papers)
- NEP-PBE-2014-02-15 (Public Economics)
- NEP-PUB-2014-02-15 (Public Finance)
- NEP-SOG-2014-02-15 (Sociology of Economics)
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