Risky Earnings, Taxation and Entrepreneurial Choice: A Microeconometric Model for Germany

Frank Fossen

No 705, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Which role do individual income prospects play in the decision to be an entrepreneur rather than an employee? In a model of occupational choice, higher expected after-tax earnings attract people to self-employment, while more risky net earnings deter risk-averse individuals. In this paper I analyse the expected value and variance of income in self-employment and dependent employment empirically, accounting for selection. Based on this analysis, structural models of self-employment entry and exit under risk are estimated, which include a standard risk aversion parameter. The model predicts that the German income tax reduction of 2000 induced smaller exit rates out of self-employment for men and smaller entry rates for women.

Keywords: Entrepreneurship; risk; returns to self-employment; taxation (search for similar items in EconPapers)
JEL-codes: C51 D81 H24 J23 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2007
New Economics Papers: this item is included in nep-bec, nep-ent and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.60157.de/dp705.pdf (application/pdf)

Related works:
Working Paper: Risky Earnings, Taxation and Entrepreneurial Choice: A Microeconometric Model for Germany (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp705

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().