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The effect of self-employed health insurance subsidies on self-employment

  • Heim, Bradley T.
  • Lurie, Ithai Z.

This paper estimates the effect of an increase in the deductibility of health insurance premiums for self-employed individuals on the probability of being self-employed. Using a panel of tax returns from 1999 to 2004, we estimate fixed effects instrumental variable regressions for the probability of being self-employed, entering into self-employment, and exiting from self-employment. Our results suggest that this policy increased the probability of being self-employed by 1.5 percentage points, and increased the probability that a taxpayer would be primarily or exclusively self-employed by 1.1 and 0.35 percentage points respectively. These effects explain about a third to a half of the total increase in self-employment by these definitions over the sample period. We also find that the probability of entering self-employment increased by 0.8 percentage points and find suggestive evidence that the probability of exit decreased by 2.8 percentage points.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 94 (2010)
Issue (Month): 11-12 (December)
Pages: 995-1007

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Handle: RePEc:eee:pubeco:v:94:y:2010:i:11-12:p:995-1007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Gruber, J. & Poterba, J., 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," Working papers 94-10, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Gumus, Gulcin & Regan, Tracy L., 2007. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," IZA Discussion Papers 2866, Institute for the Study of Labor (IZA).
  3. Holtz-Eakin, Douglas & Penrod, John R. & Rosen, Harvey S., 1996. "Health insurance and the supply of entrepreneurs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 209-235, October.
  4. Fairlie, Robert W. & Kapur, Kanika & Gates, Susan, 2010. "Is Employer-Based Health Insurance a Barrier to Entrepreneurship?," IZA Discussion Papers 5203, Institute for the Study of Labor (IZA).
  5. Jonathan Gruber & Brigitte C. Madrian, 2002. "Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature," JCPR Working Papers 255, Northwestern University/University of Chicago Joint Center for Poverty Research.
  6. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  7. Heim, Bradley T. & Lurie, Ithai Z., 2009. "Do increased premium subsidies affect how much health insurance is purchased? Evidence from the self-employed," Journal of Health Economics, Elsevier, vol. 28(6), pages 1197-1210, December.
  8. Gumus, Gulcin & Regan, Tracy L., 2009. "Self-Employment and the Role of Health Insurance," IZA Discussion Papers 3952, Institute for the Study of Labor (IZA).
  9. Thomas M. Selden, 2009. "The Impact of Increased Tax Subsidies on the Insurance Coverage of Self-Employed Families: Evidence from the 1996–2004 Medical Expenditure Panel Survey," Journal of Human Resources, University of Wisconsin Press, vol. 44(1).
  10. Robert W. Fairlie & Bruce D. Meyer, 1999. "Trends in Self-Employment Among White and Black Men: 1910-1990," NBER Working Papers 7182, National Bureau of Economic Research, Inc.
  11. Madrian, Brigitte C, 1994. "Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 27-54, February.
  12. Parker, Simon C, 1996. "A Time Series Model of Self-Employment under Uncertainty," Economica, London School of Economics and Political Science, vol. 63(251), pages 459-75, August.
  13. Lo Sasso, Anthony T. & Lurie, Ithai Z., 2009. "Community rating and the market for private non-group health insurance," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 264-279, February.
  14. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
  15. Alison J. Wellington, 2001. "Health Insurance Coverage And Entrepreneurship," Contemporary Economic Policy, Western Economic Association International, vol. 19(4), pages 465-478, October.
  16. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
  17. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
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