The Wealth Tax and Entrepreneurial Activity

Åsa Hansson

No 2005:43, Working Papers from Lund University, Department of Economics

Abstract: Entrepreneurship is often credited with generating important positive economic externalities. For example, entrepreneurs are often credited for promoting innovation, discovering new markets, and serving as a mechanism for knowledge spillover. Governments increasingly view encouraging entrepreneurship as an important policy objective. Economists have long studied the determinants of entrepreneurship. Taxation has also been found to be important, in particular income taxes and capital taxes. One form of taxation that has not been considered so far, however, is the wealth tax. The wealth tax is likely to influence entrepreneurship negatively, by affecting the pool of capital available to start up businesses as well as reducing the net return to successful entrepreneurship. This paper illustrates the impact of a tax on wealth on entrepreneurship using a simple model of the choice between becoming an entrepreneur or an employee. Actual data is then used to crudely investigate whether the wealth tax indeed has a measurable effect on self-employment in OECD countries, using increasingly sophisticated techniques. A difference-in-difference type estimator using the abolishment of the wealth tax as a ”natural experiment” points to a consistent pattern of a perceptible, but small impact.

Keywords: Entrepreneurship; wealth tax; difference-in-difference estimation (search for similar items in EconPapers)
JEL-codes: H24 H31 J23 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2005-10-19
New Economics Papers: this item is included in nep-ent, nep-pbe, nep-pub and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Journal of Entrepreneurship, 2008, pages 139-156.

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2005_043

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