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Is Self-Employment Income More Responsive to Income Tax Rate?

Author

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  • Seng-Eun Choi

    (Korea Institute for Public Finance)

Abstract

The paper analyzes the administrative Schedule C self-employment taxable income data and estimates compensated and uncompensated elasticity of self-employment taxable income of the United States. The paper finds that compensated elasticity of self-employment taxable income ranges from 0.928 to 1.598, suggesting that the calculated average deadweight loss of income tax per $1,000 self-employment income ranges from $9 to $15, and from 7% to 12% of self-employment income tax revenue. The uncompensated elasticity of self-employment taxable income ranges from 0.953 to 2.810. This responsiveness of self-employment income and average deadweight loss reflect short-term responses of static taxable income rather than long-term responses. However, the empirical analysis in this paper suggests that the selfemployment taxable income is more responsive to the changes in tax rates than the taxable income of wage workers.

Suggested Citation

  • Seng-Eun Choi, 2014. "Is Self-Employment Income More Responsive to Income Tax Rate?," Korean Economic Review, Korean Economic Association, vol. 30, pages 67-84.
  • Handle: RePEc:kea:keappr:ker-20140630-30-1-04
    as

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    File URL: http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20140630-30-1-04.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Self-employment Taxable Income; Elasticity of Taxable Income; Tax Avoidance; Deadweight Loss;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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