The Impact of Tax Incentives on the Economic Activity of Entrepreneurs

Jarkko Harju and Tuomas Kosonen

No 1220, Working Papers from Oxford University Centre for Business Taxation

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-indifferences 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.

Keywords: Entrepreneurs; small businesses; tax incidence (search for similar items in EconPapers)
JEL-codes: H22 H24 H25 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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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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