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Taxes, Economic Conditions And Recent Trends in Male Self-Employment: A Canada-U.S. Comparison

  • Herb J. Schuetze

    (McMaster University)

North American workers have increasingly turned to self-employment since the 1970's. Analysts who have primarily focused on changes in technology, industrial restructuring and in the demographic composition of the work force as explanations for the rise in self- employment have had limited success. At the same time, international statistics suggest that country- or region- specific factors, rather than widely-shared trends may play central roles in the evolution of self-employment rates. In this paper I assess the importance of two less commonly analyzed factors which do vary across regions and countries--macroeconomic conditions and the tax environment-- in explaining the trends in male self-employment in North America. I use microdata for the period 1983-1994 from Canada and the United States, which are perhaps more similar in overall institutional structure than any other two countries, but which differ substantially in their income tax policy, macroeconomic conditions, and self-employment trends. My findings suggest that higher income tax and unemployment rates are associated with an increase in the rate of male self-employment in the two countries. Changes in the tax environment account for a considerable amount of the secular trends in male self-employment over this period, while changing economic conditions played a smaller role in determining these trends.

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Paper provided by McMaster University in its series Canadian International Labour Network Working Papers with number 11.

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Handle: RePEc:mcm:cilnwp:11
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  1. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  3. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  4. Borjas, George J & Bronars, Stephen G, 1989. "Consumer Discrimination and Self-employment," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 581-605, June.
  5. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
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