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Tax Progressivity and Self-Employment Dynamics

Details

Identification
JRC nr: JRC125068
Publication date
4 May 2021

Description

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%.

Authors:

ARULAMPALAM Wiji, PAPINI Andrea

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jrc125068.pdf
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