Hansson, Åsa () (Department of Economics, Lund University)
Abstract
It is commonly argued that high tax rates motivate individuals to start a business as it is easier to avoid and evade taxes if self-employed compared to employed. If this is the case we would expect small business owners to be more responsive to tax rate changes than employees. This study investigates how responsive existing small business owners are to tax rate changes by estimating the elasticities of taxable income, gross income and reported income from business ventures for small business owners and contrast them to corresponding elasticities for employees. This is done by using a particularly rich Swedish data set and the 1990/91 Swedish tax reform as a “natural experiment”. I find that small business owners’ taxable income is about twice as responsive to tax rate changes than employees’. When it comes to reported income from business ventures the difference between small business owners and employees are even greater. For gross disposable income, however, business owners are not more responsive. This is consistent with the hypothesis that small business owners have greater means to shift income between different income sources in order to avoid taxation.
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Publisher Info
Paper provided by Lund University, Department of Economics in its series Working Papers with number
2009:6.
Length: 20 pages Date of creation: 19 Apr 2009 Date of revision: Handle: RePEc:hhs:lunewp:2009_006
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden Phone: +46 +46 222 0000 Fax: +46 +46 2224613 Web page: http://www.nek.lu.se/ More information through EDIRC
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Find related papers by JEL classification: H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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.
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