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Taxation of Small Firms under Uncertainty - A Real Option View of Firm Creation

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  • Forsfält, Tomas

    (Dept. of Economics, Stockholm University)

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    Abstract

    This paper addresses the impact of the tax system on the incentives to become self-employed. The new approach here is that the creation of a firm is assumed to be an opportunity but not an obligation, that is, a real option. A comprehensive income tax system and a "dual" tax system of the Nordic type are compared. The comprehensive system Yields a higher threshold with respect to creating a firm than the dual system. Swedish data on disposable income for different socio-economic groups are used to evaluate the relevance of the critical assumptions in the model and to find parameter estimates. A result is that the assumptions are consistent with data for white-collar labor but not for blue-collar labor.

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    File URL: http://www2.ne.su.se/paper/wp99_17.pdf
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    Bibliographic Info

    Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 1999:17.

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    Length: 33 pages
    Date of creation: 01 Nov 1999
    Date of revision:
    Handle: RePEc:hhs:sunrpe:1999_0017

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    Related research

    Keywords: income tax; firm creation; occupational choice; real option;

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