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Type: Journal Articles Authors: Frank M. Fossen ISSN: Print 0143-5671 Online: 1475-5890
Published in: Fiscal Studies, Vol. 30, No. 2, June 2009
Volume, issue, pages: Vol. 30, No. 2, pp. 179 - 218
JEL classification: H24, J23, L26, D81 Keywords: entrepreneurship, income taxation, risk, German tax reform 2000, flat tax
When potential income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour of or against a certain policy. Quantitative ex-ante evaluations of the effect of certain tax reform options on entrepreneurship are very rare, however. This paper estimates the ex-ante effects of the German tax reform 2000 and of two hypothetical flat-rate tax scenarios on entries into and exits out of self-employment based on a structural microsimulation model with econometrically estimated transition rates under risk. The simulation results indicate that flatter tax systems do not encourage people to choose self-employment, but rather discourage them from doing so. This is explained by the reduction of entrepreneurs' income risk through progressive taxation. Search |
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