Tax progressivity and self-employment: evidence from Canadian provinces

Ergete Ferede ()

Small Business Economics, 2013, vol. 40, issue 1, 153 pages

Abstract: We examine the effects of personal income tax progressivity—in the sense of rising marginal income tax rate—on self-employment. The impacts of income tax progressivity on self-employment depend on the relative effects of taxing success and the presence of tax evasion opportunities. Empirical estimates using Canadian provincial data for the period 1979–2006 indicate that there is a negative association between income tax progressivity and self-employment. This suggests that the adverse impact of income tax on entrepreneurial risk-taking outweighs the tax evasion opportunities for the self-employed. An important implication of our results is that a reduction in income tax progressivity encourages self-employment. The empirical estimates are robust to the various sensitivity checks. Copyright Springer Science+Business Media, LLC. 2013

Keywords: Self-employment; Tax progressivity; Occupational choice; H24; J23; J24; L26 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:40:y:2013:i:1:p:141-153

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DOI: 10.1007/s11187-011-9350-7

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