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Tax Progressivity and Self-Employment Dynamics

Author

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  • Arulampalam, Wiji

    (University of Warwick)

  • Papini, Andrea

    (European Commission, 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 multi-spell duration model which accounts for both observed and unobserved heterogeneity using a large longitudinal administrative dataset 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% to 5.3%.

Suggested Citation

  • Arulampalam, Wiji & Papini, Andrea, 2021. "Tax Progressivity and Self-Employment Dynamics," IZA Discussion Papers 14363, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14363
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    References listed on IDEAS

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    Cited by:

    1. Ábrahám, Árpád & Gottardi, Piero & Hubmer, Joachim & Mayr, Lukas, 2023. "Tax wedges, financial frictions and misallocation," Journal of Public Economics, Elsevier, vol. 227(C).
    2. Castro Nofal, Bastian & Díaz, Juan D. & Gutiérrez Cubillos, Pablo & Hansen, Erwin, 2024. "Stock returns and tax progressivity," Finance Research Letters, Elsevier, vol. 69(PB).
    3. 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).
    4. Orkhan Nadirov & Bruce Dehning, 2020. "Tax Progressivity and Entrepreneurial Dynamics," Sustainability, MDPI, vol. 12(9), pages 1-21, April.
    5. 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.
    6. 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.
    7. 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.

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    Keywords

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    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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