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Payroll Taxes and the Decision to be Self-Employed

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  • Mark Stabile

Abstract

This paper investigates and quantifies the role of payroll taxes in the decision to be self-employed. It examines the effects of introducing into the labour market a payroll tax which taxes employers, but which exempts the self-employed. It exploits two changes in the tax legislation to confirm that it is changes in legislation and not other sector specific trends that are driving the results. Our findings suggest that payroll taxes do indeed influence the decision to be self-employed, with the probability of self-employment increasing as taxes on employees increase and vice versa. Furthermore, there appear to be declines in the return to self-employment caused by the tax, possibly due to inefficient allocation of labour towards self-employment. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Mark Stabile, 2004. "Payroll Taxes and the Decision to be Self-Employed," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 31-53, January.
    • Handle: RePEc:kap:itaxpf:v:11:y:2004:i:1:p:31-53
    DOI: 10.1023/B:ITAX.0000004776.42301.76
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    References listed on IDEAS

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    Cited by:

    1. Egebark, Johan, 2016. "Effects of taxes on youth self-employment and income," Working Paper Series 2016:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    2. Kamhon Kan & Yen-Ling Lin, 2009. "The labor market effects of national health insurance: evidence from Taiwan," Journal of Population Economics, Springer;European Society for Population Economics, vol. 22(2), pages 311-350, April.
    3. Jack Mintz & Patrick Smith & V. Balaji Venkatachalam, 2021. "A New Approach to Improving Small-Business Tax Competitiveness," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 14(24), October.
    4. Maksim Belitski & Farzana Chowdhury & Sameeksha Desai, 2016. "Taxes, corruption, and entry," Small Business Economics, Springer, vol. 47(1), pages 201-216, June.
    5. Catherine Laffineur & Saulo Dubard Barbosa & Alain Fayolle & Emeran Nziali, 2017. "Active labor market programs’ effects on entrepreneurship and unemployment," Small Business Economics, Springer, vol. 49(4), pages 889-918, December.
    6. Mina Baliamoune-Lutz & Pierre Garello, 2014. "Tax structure and entrepreneurship," Small Business Economics, Springer, vol. 42(1), pages 165-190, January.
    7. Mikael Stenkula, 2012. "Taxation and entrepreneurship in a welfare state," Small Business Economics, Springer, vol. 39(1), pages 77-97, July.
    8. Jean-François Wen & Daniel V. Gordon, 2014. "An Empirical Model of Tax Convexity and Self-Employment," The Review of Economics and Statistics, MIT Press, vol. 96(3), pages 471-482, July.
    9. Orkhan Nadirov & Bruce Dehning, 2020. "Tax Progressivity and Entrepreneurial Dynamics," Sustainability, MDPI, vol. 12(9), pages 1-21, April.
    10. Simon C. Parker, 2010. "Contracting Out, Public Policy And Entrepreneurship," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(2), pages 119-144, May.
    11. Kadir Atalay & Woo-Yung Kim & Stephen Whelan, 2014. "The Decline of the Self-Employment Rate in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 47(4), pages 472-489, December.
    12. Åsa Hansson, 2012. "Tax policy and entrepreneurship: empirical evidence from Sweden," Small Business Economics, Springer, vol. 38(4), pages 495-513, May.

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    Keywords

    payroll taxes; self-employed;

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