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Tax Progressivity and Self-Employment Dynamics

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  • Wiji Arulampalam

    (Department of Economics, University of Warwick, IZA, Oxford CBT, and OFS Oslo)

  • Andrea Papini

    (European Commission and Joint Research Centre)

Abstract

Analysis of the relationship between taxes and self-employment should account for the interplay between responses in self-employment and wage employment. To this end, we estimate a two-state multispell duration model which accounts for both observed and unobserved heterogeneity using a large longitudinal administrative data set for Norway for 1993 to 2011. Our findings confirm theoretical predictions and are robust to various changes to definitions and sample selections. A policy experiment simulating a flatter tax schedule in the year 2000 is found to encourage self-employment, delivering a net increase of predicted inflow into self-employment from 2.8

Suggested Citation

  • Wiji Arulampalam & Andrea Papini, 2023. "Tax Progressivity and Self-Employment Dynamics," The Review of Economics and Statistics, MIT Press, vol. 105(2), pages 376-391, March.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:2:p:376-391
    DOI: 10.1162/rest_a_01046
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    1. Ådne Cappelen & Aurora G. Hattrem & Thor O. Thoresen, 2024. "Micro and macro evidence of the relationship between income mobility and taxation," Discussion Papers 1010, Statistics Norway, Research Department.
    2. Ege Can, 2022. "Income taxation, entrepreneurship, and incorporation status of self-employment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1260-1293, October.
    3. Ábrahám, Árpád & Gottardi, Piero & Hubmer, Joachim & Mayr, Lukas, 2023. "Tax wedges, financial frictions and misallocation," Journal of Public Economics, Elsevier, vol. 227(C).
    4. Gregory T. Papanikos, 2024. "Variations of Self-Employed in Eurozone Countries: The Role of Corruption and Wage Rate Growth," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 10(1), pages 9-18, January.
    5. Can, Ege & Fossen, Frank M., 2023. "Income Taxation and Hours Worked in Different Types of Entrepreneurship," IZA Discussion Papers 16683, Institute of Labor Economics (IZA).
    6. Castro Nofal, Bastian & Díaz, Juan D. & Gutiérrez Cubillos, Pablo & Hansen, Erwin, 2024. "Stock returns and tax progressivity," Finance Research Letters, Elsevier, vol. 69(PB).
    7. Orkhan Nadirov & Bruce Dehning, 2020. "Tax Progressivity and Entrepreneurial Dynamics," Sustainability, MDPI, vol. 12(9), pages 1-21, April.

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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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