Taxation of Small Firms under Uncertainty - A Real Option View of Firm Creation

Tomas Forsfält
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Tomas Forsfält: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

No 1999:17, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: This paper addresses the impact of the tax system on the incentives to become self-employed. The new approach here is that the creation of a firm is assumed to be an opportunity but not an obligation, that is, a real option. A comprehensive income tax system and a "dual" tax system of the Nordic type are compared. The comprehensive system Yields a higher threshold with respect to creating a firm than the dual system.

Swedish data on disposable income for different socio-economic groups are used to evaluate the relevance of the critical assumptions in the model and to find parameter estimates. A result is that the assumptions are consistent with data for white-collar labor but not for blue-collar labor.

Keywords: income tax; firm creation; occupational choice; real option (search for similar items in EconPapers)
JEL-codes: D81 H24 J24 (search for similar items in EconPapers)
Pages: 33 pages
Date: 1999-11-01
New Economics Papers: this item is included in nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:1999_0017

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