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Taxes, Economic Conditions And Recent Trends in Male Self-Employment: A Canada-U.S. Comparison

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Herb J. Schuetze (McMaster University)

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Abstract

North American workers have increasingly turned to self-employment since the 1970's. Analysts who have primarily focused on changes in technology, industrial restructuring and in the demographic composition of the work force as explanations for the rise in self- employment have had limited success. At the same time, international statistics suggest that country- or region- specific factors, rather than widely-shared trends may play central roles in the evolution of self-employment rates. In this paper I assess the importance of two less commonly analyzed factors which do vary across regions and countries--macroeconomic conditions and the tax environment-- in explaining the trends in male self-employment in North America. I use microdata for the period 1983-1994 from Canada and the United States, which are perhaps more similar in overall institutional structure than any other two countries, but which differ substantially in their income tax policy, macroeconomic conditions, and self-employment trends. My findings suggest that higher income tax and unemployment rates are associated with an increase in the rate of male self-employment in the two countries. Changes in the tax environment account for a considerable amount of the secular trends in male self-employment over this period, while changing economic conditions played a smaller role in determining these trends.

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Paper provided by McMaster University in its series Canadian International Labour Network Working Papers with number 11.

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Handle: RePEc:mcm:cilnwp:11

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  1. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May. [Downloadable!] (restricted)
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  1. Martinez-Granado, Maite, 2002. "Self-Employment and Labour Market Transitions: A Multiple State Model," CEPR Discussion Papers 3661, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Frank Fossen & Viktor Steiner, 2009. "Income taxes and entrepreneurial choice: empirical evidence from two German natural experiments," Empirical Economics, Springer, vol. 36(3), pages 487-513, June. [Downloadable!] (restricted)
  3. Lin, Zhengxi & Picot, Garnett & Yates, Janice, 1999. "Rising Self-employment in the Midst of High Unemployment: An Empirical Analysis of Recent Developments in Canada," Analytical Studies Branch Research Paper Series 1999133e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  4. Nadja Kamhi & Danny Leung, 2005. "Recent Developments in Self-Employment in Canada," Working Papers 05-8, Bank of Canada. [Downloadable!]
  5. Frank M. Fossen & Viktor Steiner, 2006. "Income Taxes and Entrepreneurial Choice: Empirical Evidence from Germany," Discussion Papers of DIW Berlin 582, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  6. Frank M. Fossen, 2007. "Risky Earnings, Taxation and Entrepreneurial Choice: A Microeconometric Model for Germany," SOEPpapers 29, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
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  7. Finnie, Ross & Laporte, Christine & Rivard, Maud-Catherine, 2002. "Setting up Shop: Self-employment Amongst Canadian College and University Graduates," Analytical Studies Branch Research Paper Series 2002183e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  8. Hansson, Åsa, 2005. "The Wealth Tax and Entrepreneurial Activity," Working Papers 2005:43, Lund University, Department of Economics. [Downloadable!]
  9. Marshall, Maria I. & Samal, Ananya, 2006. "The Effect of Human and Financial Capital on the Entrepreneurial Process: An Urban-Rural Comparison of Entrepreneurs in Indiana," 2006 Annual meeting, July 23-26, Long Beach, CA 21155, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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  10. Finnie, Ross & Laporte, Christine & Rivard, Maud-Catherine, 2002. "Monter sa propre entreprise : le travail indépendant chez les diplômés des collèges et universités canadiens," Direction des études analytiques : documents de recherche 2002183f, Statistics Canada, Direction des études analytiques. [Downloadable!]
  11. Mark Stabile, 2004. "Payroll Taxes and the Decision to be Self-Employed," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 31-53, January. [Downloadable!] (restricted)
  12. Thomas A. Garrett & Howard J. Wall, 2006. "Creating a policy environment for entrepreneurs," Working Papers 2005-064, Federal Reserve Bank of St. Louis. [Downloadable!]
  13. Stenkula, Mikael, 2009. "Taxation and Entrepreneurship in a Welfare State," Working Paper Series 800, Research Institute of Industrial Economics. [Downloadable!]
  14. Baldwin, John R. & Chowhan, James, 2003. "The Impact of Self-employment on Labour-productivity Growth: A Canada and United States Comparison," Economic Analysis (EA) Research Paper Series 2003016e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  15. Julie Zissimopoulos & Lynn A. Karoly, 2003. "Transitions to Self-Employment at Older Ages: The Role of Wealth, Health, Health Insurance, and Other Factors," Working Papers 135, RAND Corporation Publications Department. [Downloadable!]
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  16. Kevin Moore, 2004. "The effects of the 1986 and 1993 tax reforms on self-employment," Finance and Economics Discussion Series 2004-05, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  17. Raquel Carrasco & Mette Ejrnæs, 2003. "Self-employment in Denmark and Spain: Institution, Economic Conditions and Gender differences," CAM Working Papers 2003-06, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
  18. Laura Blow & Ian Preston, 2002. "Deadweight loss and taxation of unearned income: evidence from tax records of the UK self-employed," IFS Working Papers W02/15, Institute for Fiscal Studies. [Downloadable!]
  19. Garnett Picot & Andrew Heisz, 2000. "The Performance of the 1990s Canadian Labour Market," Canadian Public Policy, University of Toronto Press, vol. 26(s1), pages 7-25, July. [Downloadable!] (restricted)
  20. William M. Gentry & R. Glenn Hubbard, 2004. ""Success Taxes," Entrepreneurial Entry, and Innovation," NBER Working Papers 10551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Simon C. Parker & Yacine Belghitar, 2006. "What Happens to Nascent Entrepreneurs? An Econometric Analysis of the PSED," Small Business Economics, Springer, vol. 27(1), pages 81-101, August. [Downloadable!] (restricted)
  22. Frenette, Marc, 2002. "Do the Falling Earnings of Immigrants Apply to Self-employed Immigrants?," Analytical Studies Branch Research Paper Series 2002195e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
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