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Taxation and Entrepreneurship in a Welfare State

Does tax policy affect the rate of self-employment in a modern welfare state? This question is analyzed empirically based on Swedish data for the entire post-war period. Available tax data indicate that payroll taxes have had a negative influence on the unincorporated rate of self-employment, though the effect is modest. No effects from regular labor income taxation or capital gains taxation are found. The paper improves upon earlier studies in that it tries to separate the effects of different taxes, and uses cointegration techniques. A further extension is that it studies a Scandinavian high-tax welfare state. Earlier time-series studies analyzing self-employment and taxation have with few exceptions been based on data from countries with relatively low tax levels and less comprehensive welfare systems, notably the US and the UK.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 800.

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Length: 38 pages
Date of creation: 10 Jun 2009
Date of revision:
Publication status: Forthcoming as Stenkula, Mikael, 'Taxation and Entrepreneurship in a Welfare State' in Small Business Economics .
Handle: RePEc:hhs:iuiwop:0800
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Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

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