IDEAS home Printed from https://ideas.repec.org/p/hhs/lunewp/2009_006.html
   My bibliography  Save this paper

Are small business owners more successful in avoiding taxes: Evidence from Sweden

Author

Listed:

Abstract

It is commonly argued that high tax rates motivate individuals to start a business as it is easier to avoid and evade taxes if self-employed compared to employed. If this is the case we would expect small business owners to be more responsive to tax rate changes than employees. This study investigates how responsive existing small business owners are to tax rate changes by estimating the elasticities of taxable income, gross income and reported income from business ventures for small business owners and contrast them to corresponding elasticities for employees. This is done by using a particularly rich Swedish data set and the 1990/91 Swedish tax reform as a “natural experiment”. I find that small business owners’ taxable income is about twice as responsive to tax rate changes than employees’. When it comes to reported income from business ventures the difference between small business owners and employees are even greater. For gross disposable income, however, business owners are not more responsive. This is consistent with the hypothesis that small business owners have greater means to shift income between different income sources in order to avoid taxation.

Suggested Citation

  • Hansson, Åsa, 2009. "Are small business owners more successful in avoiding taxes: Evidence from Sweden," Working Papers 2009:6, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2009_006
    as

    Download full text from publisher

    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP09_6.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
    2. 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.
    3. Holmlund, Bertil & Söderström, Martin, 2007. "Estimating Income Responses to Tax Changes: A Dynamic Panel Data Approach," Working Paper Series 2007:25, Uppsala University, Department of Economics.
    4. Apel,M., 1994. "An Expenditure-Based Estimate of Tax Evasion in Sweden," Papers 1, Uppsala - Working Paper Series.
    5. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    6. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
    7. Hansson, Åsa, 2008. "Income taxes and the probability to become self-employed: The case of Sweden," Ratio Working Papers 122, The Ratio Institute.
    8. William M. Gentry & R. Glenn Hubbard, 2005. ""Success Taxes," Entrepreneurial Entry, and Innovation," NBER Chapters,in: Innovation Policy and the Economy, Volume 5, pages 87-108 National Bureau of Economic Research, Inc.
    9. Åsa Hansson, 2007. "Taxpayers' responsiveness to tax rate changes and implications for the cost of taxation in Sweden," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 563-582, October.
    10. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey S. Rosen, 2001. "Personal Income Taxes and the Growth of Small Firms," NBER Chapters,in: Tax Policy and the Economy, Volume 15, pages 121-148 National Bureau of Economic Research, Inc.
    11. Bruce, Donald, 2002. "Taxes and Entrepreneurial Endurance: Evidence From the Self-Employed," National Tax Journal, National Tax Association, vol. 55(1), pages 5-24, March.
    12. Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
    13. Aarbu, Karl O. & Thoresen, Thor O., 2001. "Income Responses to Tax Changes--Evidence From the Norwegian Tax Reform," National Tax Journal, National Tax Association, vol. 54(2), pages 319-338, June.
    14. Carroll, Robert, et al, 2000. "Income Taxes and Entrepreneurs' Use of Labor," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 324-351, April.
    15. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey S. Rosen, 1998. "Entrepreneurs, Income Taxes, and Investment," NBER Working Papers 6374, National Bureau of Economic Research, Inc.
    16. Robert Carroll & Douglas Holtz-Eakin & Mark Rider & Harvey Rosen, 1996. "Income Taxes and Entrepreneur' Use of Labor," Working Papers 752, Princeton University, Department of Economics, Industrial Relations Section..
    17. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
    18. Bruce, Donald, 2002. "Taxes and Entrepreneurial Endurance: Evidence from the Self-Employed," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 5-24, March.
    19. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-1526, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Where most of tax avoidance happens: small business owners
      by Economic Logician in Economic Logic on 2009-06-17 13:24:00

    More about this item

    Keywords

    Taxable income elasticities; tax avoidance;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Economic Logic blog

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2009_006. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton). General contact details of provider: http://edirc.repec.org/data/delunse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.