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Payroll Taxes and the Decision to be Self-Employed

  • Mark Stabile

    ()

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

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File URL: http://hdl.handle.net/10.1023/B:ITAX.0000004776.42301.76
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 11 (2004)
Issue (Month): 1 (January)
Pages: 31-53

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Handle: RePEc:kap:itaxpf:v:11:y:2004:i:1:p:31-53
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  2. Michael Baker, 2002. "The Retirement Behavior of Married Couples: Evidence from the Spouse's Allowance," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 1-34.
  3. Schuetze, Herb J., 2000. "Taxes, economic conditions and recent trends in male self-employment: a Canada-US comparison," Labour Economics, Elsevier, vol. 7(5), pages 507-544, September.
  4. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
  5. Baker, Michael & Benjamin, Dwayne, 1999. "Early Retirement Provisions and the Labor Force Behavior of Older Men: Evidence from Canada," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 724-56, October.
  6. Jonathan Gruber & Alan B. Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Working Papers 3557, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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.
  9. Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
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