Risky Earnings, Taxation and Entrepreneurial Choice: A Microeconometric Model for Germany
No 705, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
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: J23 H24 D81 C51 (search for similar items in EconPapers)
Pages: 35 p.
New Economics Papers: this item is included in nep-bec, nep-ent and nep-pub
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Working Paper: Risky Earnings, Taxation and Entrepreneurial Choice: A Microeconometric Model for Germany (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp705
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