The Impact of Tax Incentives on the Economic Activity of Entrepreneurs

Jarkko Harju and Tuomas Kosonen

No 18442, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Based on existing evidence, we know little about how the taxation of small business owners affects their economic activity. This paper studies the effect of two Finnish tax reforms, in 1997 and 1998, on the effort decisions of the owners of small businesses utilizing both theoretical model and empirical data. The reforms reduced the income tax rates of small business owners and applied only to unincorporated firms, leaving corporations out. We use a difference-in-differences strategy to estimate the causal impact of tax incentives on the economic activity of small businesses. The results imply that lighter taxation leads to an increase in the turnover of firms that we interpret as an increase in effort exerted by their owners.

JEL-codes: H22 H24 H25 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-ent, nep-pbe and nep-pub
Note: PE
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: The Impact of Tax Incentives on the Economic Activity of Entrepreneurs (2013)
Working Paper: The impact of tax incentives on the economic activity of entrepreneurs (2013)
Working Paper: The Impact of Tax Incentives on the Economic Activity of Entrepreneurs (2012)
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